Its stock’s been soaring, and earnings are beating expectations. It posted $92.3 million in revenue in the first quarter of 2018—up 42 percent from the same period last year.
Still, 2U wants more cash. And that it got—$331 million, to be exact. That’s how much the Landham, Maryland-based company raised through its latest public offering of common stock this week.
So why did the publicly-traded developer of online educational programs need this latest infusion?
One goal, Paucek tells EdSurge in an interview, is to “have the flexibility to pursue opportunities like what we did with GetSmarter.” He’s referring to the South Africa-based company that works with universities to build short online courses, which 2U purchased for $103 million in May 2017.
That was 2U’s first acquisition—and likely not the last. “All options are on the table,” he adds. He was vague on what the company is eyeing next, only saying that “technologies and services that support our students and improve our core business is critical.” Earlier this year, 2U paid $14.5 million for a perpetual license to an online coding platform built by Flatiron School (which is owned by WeWork).
Founded in 2008, 2U’s core business—helping universities create and market online, degree-bearing graduate programs—continues to grow. It currently runs 58 of these programs for 34 universities. (Another 16 digital graduate programs are planned for 2019, and another 19 in 2020). Last year, these partnerships made up more than 90 percent of the company’s $286.8 million in revenue.
The rest of the money comes from the roughly 80 short-term programs offered through GetSmarter. Targeted at working professionals looking to learn new skills, these courses run six to 16 weeks and are co-branded with higher-ed institutions that award certifications (but not degrees).
Both business lines support the company’s goal to create what Paucek calls a “long-term, sustainable engine of social mobility.”
“A lot of people see alternative credentials as a replacement to a degree,” he says. “We don’t see it that way. People in skilled professions are often taking short courses to build additional skill sets. But that’s not in lieu of getting a master’s or doctorate’s [degree].”
2U’s latest fundraise could also support a third business segment, one that the company quietly teased at with a brief sentence in its 2017 stockholder letter: “We are even starting to plant some seeds on the undergrad opportunity,” Paucek wrote. To date, 2U has not created any online undergraduate degree programs.
For now, as 2U’s revenues have grown, so have its losses. According to its latest financial update, the company is predicting to see a 42 percent revenue growth for 2018. At the same time, it expects net losses could reach $46.6 million—up from $29.4 million last year.
That’s due largely to the upfront costs associated with starting a new digital graduate program, say Paucek. The effort is resource-intensive as 2U provides a wide range of services, from working with faculty to develop the content, to providing marketing and technology support. In essence, “the more programs we’re launching, the more our short-term losses will be higher.”
After an online program goes live, 2U takes about a 60 percent cut of the tuition. That’s when it (hopefully) starts earning its money back. The company typically signs universities to contracts that last 10 to 15 years.
For now, most of that revenue is reinvested to continue growing its pipeline of online programs and university partners. And that leaves 2U a little more strapped than it would like to pursue acquisitions like GetSmarter. In fact, four months after that deal, 2U raised $189.5 million through another common stock offering to re-up its cash on hand.
That funding strategy is proving to be tried and true for the company, which has now raised $738 million across four public offerings (including its IPO in 2014), according to Paucek.
That naturally begs the question: When will 2U raise money again?
“We believe the company is fully funded,” he says. “There is no plan to raise additional capital.”
