Dive Brief:

• Online program manager 2U lowered its growth expectations — again. It will launch fewer new programs and expects smaller program sizes going forward in response to growing competition for online education, it told analysts in a call Tuesday evening about its second-quarter earnings. 
• The shift caused the value of the company's stock to drop by 65% as of the market close Wednesday afternoon. 2U also revised down its growth projections last quarter, attributing the decision to increased selectivity among its university partners.
• The change of tack comes as the online education market crowds, with more players providing a range of program types and price points. That trend is reflected in 2U's moves to broaden its offerings through acquisition.

Dive Insight:

"Their business model is going to change, and as part of that the way they have historically made money and the margin profile around that model is going to change as well," said Nick Hammerschlag, president of Entangled Group, an education investment firm. "But what it also means is they are actually putting themselves in a position to keep more of their customers ... by opening up these different ways of engaging." 

As evidence of that, quarterly revenue in 2U's short-course program nearly doubled year-over-year. Hammerschlag​ called that "a bright spot" for 2U that "is thematically aligned with where the market is going."

Slowing graduate program launches will help 2U make operational improvements that should strengthen its cash position, 2U CEO Chip Paucek said during the analyst call. "What we're doing today is reorienting our spend and our operation off of what is a smaller expected steady-state enrollment," he said.

Paucek acknowledged that students' online education options "have expanded significantly." 

For instance, edX has grown its set of online master's degrees to 10 with the recent addition of an MBA in partnership with Boston University. Like 2U, it is incorporating shorter-term programs. A new supply chain management master's degree with Arizona State University requires students to pass a six-course program with the Massachusetts Institute of Technology before applying, both offered on edX.

More competition has 2U looking to offer programs at a wider range of price points. That's something its strategic partnership with OPM Keypath Education set earlier this year aims to help it achieve.

Institutions are also looking for more flexibility in their relationships with online education providers than is typically provided by the revenue-share model on which 2U has long operated.

"The power dynamic is shifting," Hammerschlag​ said, adding that colleges have more options in terms of companies to turn to for help going online.

One way 2U is responding to that change is through an anticipated partnership to be the "exclusive pan-university digital education collaborator" with the University of North Carolina at Chapel Hill.

Paucek said on the call that it will involve it working on a fee-for-service basis to offer some "smaller size programs." 2U already works with UNC Chapel Hill on a set of online graduate degrees in public health, business and public administration. 

Joanne Peters Denny, director of media relations for UNC Chapel Hill, told Education Dive in an email that the contract is still under negotiation.

Paucek credited 2U's acquisitions of boot camp company Trilogy Education Services and short-course provider GetSmarter with the ability to offer institution-wide agreements. In April, 2U announced it would incorporate a boot camp offering through UNC Chapel Hill's MBA program as a result of the Trilogy deal.

"This is the future," he said.

2U lowered its year-end projections to a net loss of between $157.5 million and $151.5 million — compared to the annual net loss of $79 million to $77.2 million it forecast in the first quarter. It posted a net loss of $38.3 million in 2018.

The company is projecting revenues between $565.7 million and $575.7 million for 2019, slightly up from its projections of $534 million to $537 million made last quarter. It brought in $411.8 million in 2018.