Dive Brief:
- 2U is betting that becoming more consumer-centric will improve marketing costs and turn up more prospective students for the company, which helps colleges launch and run online degrees, its chief executive said Thursday as the company released earnings for the first quarter of 2022.
- Company officials touted 2U's recent acquisition of edX, a MOOC platform. They predict edX will generate 500,000 leads in 2022 — representing around 10% of 2U's overall lead volume.
- These leads involve "no additional marketing costs," Chip Paucek, the company's CEO, told analysts during a call Thursday to discuss a first quarter in which the company's net loss nearly tripled to $125.8 million. 2U has also added all of its degree, boot camp and executive education programs onto edX's website, marking a major step in making edX the consumer-facing brand of the company.
Dive Insight:
In 2U's early days, it built its brand on helping top-ranked colleges launch graduate degrees online. In the last few years, the company has increasingly focused on providing short-term courses, boot camps and bachelor's degrees, and it is eyeing international expansion.
In November, 2U supercharged those efforts by snapping up edX for $800 million. When the purchase was announced, company officials said edX's strong consumer brand and website traffic would make it easier to recruit students into its existing programs.
Paucek continued to sound those notes during a call with analysts Thursday to discuss 2U's quarterly earnings.
"We believe our free-to-degree product portfolio, with edX as our consumer brand, is just what the market needs," Paucek said. "Higher education, like so many industries, is becoming consumer-centric, a dynamic only accelerated by COVID."
Marketing and sales are 2U's biggest annual expenses, and they totaled $131 million of the company's costs in the first quarter of 2022. While edX's acquisition was expected to lower marketing costs by tens of millions of dollars in the first two years, the first quarter's marketing expenses represent an increase of 15.7% from a year ago.
Overall costs grew to $364.7 million in the first quarter, a 35.3% year-over-year increase. Revenue, meanwhile, rose at a much slower rate, increasing around 9% from a year ago. Those trends caused the company's net loss to widen to $125.8 million, almost tripling from $45.6 million in the first quarter of last year.
Still, Paucek was optimistic about edX's ability to attract students into degree programs, citing growing student interest on the edX website in undergraduate offerings from the London School of Economics and Political Science.
He also addressed a report released Thursday from the U.S. Government Accountability Office. It suggested the U.S. Department of Education strengthen oversight of colleges' relationships with companies like 2U, called online program managers or OPMs, to ensure compliance with federal laws meant to prevent abusive student recruiting policies.
The GAO recommended the Education Department provide information to independent auditors who review college programs annually to help them ask about OPM contracts. It also suggested the department tell colleges about the information they must provide about their relationships with OPMs.
"We reviewed the report and we're very supportive of the GAO's recommendations," Paucek said. "Greater transparency and continued oversight will actually ensure that the industry as a whole is serving the best interests of students."
