Apollo's yearly earnings rose only about 2% from last year, with revenues up 5.6% to $653.6 million. Those numbers aren't particularly inspiring, but they don't indicate a decline in the business model, either. The report contained another key indicator of future revenue: Associate's-degree enrollments at Apollo's University of Phoenix jumped 94% to about 66,100, while bachelor's-degree enrollments declined about 5% to 156,400. This might be good news for Apollo, since associate's degrees tend to lead to bachelor's degrees. The current decline in the latter doesn't much worry me at present.
The best reason to invest in Apollo, in my opinion, is the disruptive potential of its well-known University of Phoenix. For-profit institutions like the U of P, with its convenient classes over the Internet, are attracting many people who might never have otherwise pursued traditional college degrees. Tapping this eager market has fueled tremendous growth for Apollo, with revenues approaching $2.25 billion in 2005.
Traditional institutions of higher learning are having a difficult time with this approach, since they strive instead to offer the best education to the best students. The traditional school model is built to support that mission, with expensive, high-profile faculty, high tuition costs, and highly selective admissions. Traditional M.B.A. programs, for example, work well for those with the necessary time and resources, but companies increasingly can't afford to lose their talent for a two-year full-time program.
Witness the rise of corporative universities such as GE's
Our highly distinguished schools are on the top of their game, with applications rising and thousands of families willing to fork over hefty tuition costs. But Apollo and other educational providers are emerging as a low-cost threat, offering customization and opportunity to thousands of people traditional colleges might never reach.
So what does this Fool think of Apollo's stock, trading just above its 52-week low? Not surprisingly, it looks intriguing, if a touch expensive on a price-to-free cash flow basis. As a blue chip with impressive long-term potential, Apollo could be worth investors' consideration for a small position, expanded over time through dollar-cost averaging. It might just be a smart investing move.
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