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Shares of an online education company 2H fell about 60% to below $1 on Friday, following a problematic forecast and indications that some universities are terminating their contracts.
2U, which helps companies deliver digital programs to students, posted a net loss of $47.4 million in the third quarter. The adjusted loss of 15 cents per share was wider than the 13 cents analysts had expected, according to LSEG, formerly known as Refinitiv. For the full year, 2U now expects revenue of $965 million to $990 million, down from its previous guidance of $985 to $990 million.
“These results fell short of our expectations given weaker demand in our coding bootcamps and continued enrollment weakness in some of our higher-priced courses,” CEO Christopher Paucek said at the start of the analysts’ call on Thursday. “We also know that we need to strengthen our balance sheet and are working hard on that.”
The bigger problem with the forecast is that it includes revenue that will be paid to the company to discontinue use of its programs. For example, 2U said the University of Southern California is paying $40 million to end the relationship.
“We thank USC for the role they have played in building our company,” Paucek said on the call. “But ultimately, the programs we agreed on no longer align with our platform strategy.”
Analysts at Cantor Fitzgerald lowered their rating on the stock from “overweight” to “neutral,” describing 2U’s actions as a “fire sale to stay afloat.”
The company’s earnings report shows that it is heavily dependent on one-time payments from universities and that its “core credentialing business is deteriorating,” the analysts wrote. The company also laid off 12% of its workforce this quarter and has a worrying debt burden, with nearly $880 million in long-term debt.
2U’s path to profitability was based on the idea that more degrees on the platform would lead to “meaningful profits,” the Cantor analysts wrote.
2U did not immediately respond to CNBC’s request for comment.
Shares of 2U debuted on the Nasdaq in 2014. The stock peaked at more than $98 per share in May 2018, giving the company a market capitalization of more than $5 billion. By Friday, the valuation had fallen to $77 million.
If a stock on the Nasdaq trades below $1 for 30 consecutive days, the exchange can begin delisting procedures. Some companies undergo a reverse stock split to raise the stock price above $1, but that doesn’t solve their financial problems.
Scooter company Bird was delisted from the New York Stock Exchange in September after failing to keep its market capitalization above $15 million for 30 consecutive days. That was after a 1-for-25 reverse split to get the stock above $1. Office consultancy company WeWork filed for bankruptcy this week after declaring a 1-for-40 reverse split in August that was intended to try to maintain its listing on the NYSE.
2U shares fell 59% to 99 cents on Friday afternoon.
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