Postscript on 2U Earnings Call Story

Author

Phil Hill
August 01, 2019

My live-tweeting and blog post two days ago about 2U’s earnings call seems to triggered a bit of news coverage and commentary. I stand by that post, but I have noticed one area that may have been (inadvertently or not) mischaracterized. The following description was too brief and could use some clarification:

2U announced a new “institutional suite” product based on their recent RFP win with UNC for a university-wide support (exclusive provider) for 10 graduate programs. This institutional suite is not the same thing as their traditional full-service revenue-sharing OPM model, however. Importantly, it includes fee-for-service offerings.

My understanding is that the new institutional suite, and more importantly the fee-for-service model, is additive and not a replacement. In other words, 2U is expanding their offerings so that traditional OPM clients (i.e. schools already signed up with revenue sharing programs) can extend 2U services into other programs where fee-for-service is the model. I do not believe that 2U is moving away from revenue sharing.

Now that I re-read the post (which I have updated), the second reference is likely a source of some of this confusion.

2U is not the same company as they were even two years ago. They now offer fee-for-service as well as revenue-sharing models (as do most of the other large OPMs) [Note: These fee-for-service offerings are in addition to traditional revenue sharing models for 2U], and their growth assumptions appear to be as much around bootcamps and short courses and they are around traditional graduate degree programs.

What is important to understand is that the issues mentioned in the earnings call as drivers of the changes (market dynamics and increased competition) are more about online education as a market itself, not specifically about other OPM vendors. It is online programs that are having much greater competition from other institutions – a competition for students – with one result being smaller cohort sizes in many cases.

2U appears to be reacting to these changes in the overall market and the resultant changes in business outlook, by broadening their portfolio. One 2U method – that we have seen starting in 2017 – is the addition of short courses and boot camps by corporate acquisition (GetSmarter and Trilogy). Another method – that we first heard about two days ago – is the addition of more services for partner schools outside of the initial program. The latter is the genesis for the institutional suite.

The changes 2U is going through, in their offerings and outlook and even stock price, are significant by themselves. But I do not think they are moving away from revenue sharing.