2U announced across-the-board layoffs and changes to its business strategy on Thursday, as it reorients the company around edX, a prominent MOOC platform it acquired last year.
The online program management company, or OPM, built its business helping colleges launch and run online programs by offering services such as marketing, recruitment and course design. In exchange, institutions give 2U a cut of their programs’ tuition revenue.
2U officials announced the company is updating this part of the business model, saying it will offer tuition-share agreements starting at 35% of a program’s revenue — with higher rates available to colleges that want more services.
The new tuition-share model comes as criticism mounts over these deals. Some lawmakers and policy advocates say tuition-share agreements lead OPMs to aggressively recruit students into online programs to boost their own revenue.
Most recently, the U.S. House Committee on Appropriations called on the Department of Education to pull back regulatory guidance that allows companies to use these models for service packages that include recruitment. And a recent report from the U.S. Government Accountability Office found the Ed Department hasn’t been doing enough to ensure that OPM contracts are complying with federal laws and guidance meant to prevent aggressive recruitment practices.
Pressure has also ramped up on 2U.
A recent Wall Street Journal report found that the companies’ recruiters were using “.edu” email addresses to contact prospective students, as well as calling from the area codes of the universities whose programs they were marketing. Students told the publication they were unaware that an outside company was recruiting them into the programs.
2U announced Friday that the 35% tuition-share option would be available for colleges that use its core set of services, which includes program design and student support. Colleges that want more support services — such as paid digital marketing, curriculum design and faculty recruitment — will pay higher shares. Under the model, tuition-share agreements could reach 60%.
The company also said that it would lower its revenue-share level for any college that agrees to significantly reduce online tuition.
Putting edX at the center
2U’s overall revenue increased to $241.5 million in 2022’s second quarter, up 1.8% year over year. However, the company’s degree program revenue decreased to $143.1 million, down 2.1% from the year before.
The company has been making moves to expand its offerings to include more alternative credentials like boot camps and online courses. The company’s alternative credential segment increased to $98.4 million in the second quarter, up 8.1% from the year before.
2U has expanded its alternative education offerings through acquisitions, including by snapping up Trilogy Education Services in 2019 and edX last year. Officials at 2U have previously expressed plans to make edX the consumer-facing brand of the company.
Chip Paucek, 2U’s CEO, doubled down on that strategy in a call with analysts Thursday to discuss the company’s earnings.
“Over the last six months, we’ve become increasingly confident in our platform strategy, which puts edX at the center,” Paucek said. The move is meant to reduce the company’s marketing costs and drive long-term profitability, he said.
Since becoming a public company in 2014, 2U has never posted a profitable year. Its second quarter results were no different, with the company reporting a net loss of $62.9 million — nearly tripling from the same period last year.
The restructuring would lead to about $70 million in annual cost savings, said Paul Lalljie, 2U’s chief financial officer. The company will incur restructuring costs of between $35 million and $40 million by the time the layoffs are complete.
The reductions will be “across the board,” Paucek said.
2U announced the layoffs a month after Bloomberg reported that Byju’s, an India-based online education provider, has offered to buy the company for about $15 a share — a move that valued the OPM at more than $1 billion.
Paucek addressed those reports Thursday, saying the company doesn’t comment on “rumors.”
“As a public company, you're effectively always for sale,” he said. "And you're of course going to do what's right for shareholders.”
