Chip Pausek, co-founder and former CEO of 2U, appeared at the company’s headquarters in Lanham, Maryland on November 17, 2021. Paul Largy, the company’s chief financial officer, will succeed Pausek as CEO in November 2023.
Marvin Joseph | Washington Post | Getty Images
The company is currently struggling to survive.
2U stock has been trading below $1 for much of 2024 following predictions of trouble in November and signs that some universities will terminate their contracts. 2U this week issued a weak outlook for this year, warning investors that “there are significant questions about its ability to continue as a going concern” without adding capital or reducing debt.
After the announcement, 2U stock plunged 59%. It fell another 10% on Wednesday to close at 34 cents, giving 2U a value of $27.5 million.
Needham analysts downgraded the rating from “buy” to “hold” following this week’s report, making the outlook more skeptical about 2U’s ability to refinance its more than $900 million in debt at the end of 2023. He said it had become. Cash and equivalents decreased to $73.4. $1 million, up from $182.6 million at the end of 2022.
A 2U spokesperson said in a statement to CNBC that the company “does not speculate on potential outcomes.”
“2U looks forward to continuing to engage constructively with its lenders and other financial stakeholders as it continues to consider options to strengthen its balance sheet and adapt its business to the current circumstances.” a spokesperson said. “We believe we have sufficient time and liquidity to reach a resolution that will benefit our stakeholders.”
The company was founded in 2008, originally named 2Tor, and built its business around the idea of helping universities reach more students by holding classes online. Over the years, 2U’s vast business has come from several universities.
In 2017, 2U derived more than half of its revenue from the University of Southern California (which runs its oldest program), Simmons College in Boston, and the University of North Carolina. 2U eventually succeeded in diversifying, and by 2021 no university clients accounted for more than 10% of his revenue.
But the biggest problem was that the 2U model failed to prove profitable. As a publicly traded company, 2U has been losing money every year, with total losses over the past three years exceeding $830 million. As noted in its 2021 annual report, the majority of 2U’s revenue goes to sales and marketing, with the company investing “significantly on technology and production efforts to support its ever-increasing number of products.” “We had to expend thousands of financial and other resources.”
Rather than retain capital, 2U engaged in M&A on a large scale.
In 2019, it paid more than $600 million to acquire Trilogy Education, gaining more than 2U university partners. And in 2021, the company announced plans to acquire online learning platform edX for approximately $800 million in cash. The acquisition will give 2U more than 230 education partners, including 19 of the world’s top 20 universities, the companies said in a joint release upon closing.
The plan didn’t work out. 2U took on debt to acquire edX, resulting in “interest payments in excess of the revenues that edX would generate,” Cantor Fitzgerald analysts said in a report late last year.
By early 2022, sales growth had fallen to mid-single digits and began to decline by the middle of the year. Year-on-year sales decreased for the fifth consecutive quarter. Multiple layoffs followed.
In the third quarter of 2023, a catastrophic development occurred.
2U told investors in its November earnings call that its main customer, USC, was paying the company $40 million to end the relationship. 2U has revised its full-year forecast downward. The stock price plummeted 57% in one day.
“We are grateful to USC for its role in supporting our company’s development,” then-CEO Chip Pausek said at the company’s financial results conference. However, it added: “The health of our existing portfolio is very strong due to our results from a new pipeline perspective.”
A few days later, Pausek resigned. He was replaced by then-CFO Paul Lalljie.
Pausek, who did not respond to requests for comment, currently serves as co-CEO of Pro Athlete Community. This company was launched in 2022 and supported by him as a company that supports the education of professional athletes in business. His former company is currently in crisis with its stock price declining.
Stocks that trade below $1 for 30 consecutive days may be delisted from the Nasdaq. 2U may implement a reverse stock split to boost its stock price, but that would be a temporary solution to a larger problem. Cantor Fitzgerald, KeyBank and Piper Sandler have all stopped reporting on the company’s stock in recent months, indicating a lack of confidence in the company’s future.
Gautam Tanbay, co-founder and CEO of online learning startup Springboard, told CNBC that it was sad to see the pioneers of the space battle.
“In my heart, I want to see them overcome these challenges and get to the other side so they can fulfill the mission they founded the company to fulfill: ultimately serving students. That feeling is a big part of it,” Tambay said.
Far from their days of growth, 2U is just trying to survive.
On an earnings call this week, Largy said the company is “embarking on a 12-quarter journey” toward a reset, including cutting expenses and working with lenders to pay down debt.
“We need to shrink in order to grow,” Largy said. We continue to strive to be a financially resilient company. ”
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