2U saw its shares fall below $1 on Friday following its report that revealed a larger-than-anticipated net loss in the third quarter and a lower revenue projection for the year. CEO Christopher Paucek expressed disappointment when he opened the earnings call Thursday, saying, "These results did not meet our expectations."
2U saw its stock plunge about 60% on Friday, falling below $1, subsequent to a defective financial outlook and signs that some universities are cancelling their contracts. The online education company disclosed a net loss of $47.4 million for the third quarter, along with an adjusted loss of 15 cents per share that was wider than the 13 cent loss analysts had expected, based on data from LSEG. They went on to lower their expectations for full year revenue from $985 to $990 million to $965 million to $990 million.
CEO Christopher Paucek spoke of the predicament by stating that the results "did not meet our expectations given weaker demand in our coding boot camps and continued enrollment softness in some of our higher-priced degree programs." The more worrisome concern with the financial forecast is that it consists of revenue that will be paid out to the company in order to end the association. For example, 2U mentioned that the University of Southern California is paying $40 million to end the relationship.
Cantor Fitzgerald altered their rating on the stock to "neutral" from "overweight," describing the company's actions as a "fire sale to stay afloat." Analysts at the firm noted that 2U relies heavily on one-time payments from universities and that its "core degree business is deteriorating," and additionally that it had cut 12% of its personnel in the quarter and had a debt load of almost $880 million. They explained that the path to profitability was built on the hypothesis that more degrees on the platform would result in "significant profits," which has yet to be seen.
The company's stocks made their debut on the Nasdaq in 2014, peaking in May 2018 at over $98 a share. By Friday, its market-cap had plunged to $77 million. If a stock on the Nasdaq trades beneath $1 for 30 consecutive days, the exchange can start delisting operations. Certain companies choose to undertake a reverse stock split in an attempt to boost their share price over $1, however that does not solve their fiscal woes. For instance, Bird was delisted from the New York Stock Exchange in September after failing to keep its market cap above $15 million for 30 straight days, even after they executed a 1-for-25 reverse split to push the stock over $1. Just this week, WeWork ended up filing for bankruptcy protection, after doing a 1-for-40 reverse split in August to try and keep its NYSE listing. At mid-afternoon on Friday, 2U shares were down 59% to 99 cents.
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