Should The Washington Post Company Be Called The Kaplan University Company?

| About: Graham Holdings (GHC)

The Washington Post Company (WPO), as the name suggests, is more than just a newspaper. Most people, understandably so, probably assume that the majority of the company's revenue comes from the newspaper division. It's called the Washington Post Company for crying out loud. However, given that 58% of 'The Washington Post Company's' revenue comes from Kaplan University, perhaps this company should be renamed "The Kaplan University Company."

(Washington Post 2011 Annual Report)

I first became aware that Kaplan University was propping up the Washington Post in a Huffington Post article from 2010. The article, which is very worth reading in its entirety, exposes a process of 'guerilla registration' that was happening at Kaplan University in which Kaplan academic advisors enrolled students in expensive classes, (thousands and thousands of dollars) that the students never were aware they were even enrolled in.

The article forms the crux of my bearish thesis about the WPO. There are some really horrifying quotes from people on the inside: "'If you just tell a first-year student they owe money, they will just pull out of the school and go somewhere else,' Johnson said. 'But if you're close to graduation, you just want to take care of it and move on.'" A student tells a tale of signing a withdrawal form thinking she is free and clear to go take care of her sick mother, and a year later gets hounded by collection agents for $10,000 because she was never actually withdrawn from Kaplan.

Online universities in general are heavily dependent on federal loan programs for students to be able to afford the thousands of dollars it costs to get even an online degree, and the Washington Post Company is no exception, "During 2011, funds received under Title IV programs accounted for approximately $1,110 million, or approximately 79%, of total KHE (Kaplan Higher Education) revenues."

Most students who choose to attend an online university come from modest means and are more likely to require a loan to get an education than a student attending a traditional university. The real problem is that these online degrees are not worth very much. Tell me, would you hire someone with a degree from Kaplan University? Especially in the current economic environment, in which people with P.H.D's are on food stamps?

Also from the article, "Students at Kaplan-owned campuses had among the highest three-year student loan default rates of all the publicly traded colleges in the industry: more than 27 percent, according to an analysis of the Education Department data."

Essentially, the Washington Post Company is being financed by federal student loans from desperate student borrowers who may have a very difficult, perhaps impossible time repaying their loans after they leave Kaplan.

You'll notice the article is from 2010. Fast forward a little bit to the 2011 annual report, and one will notice that Kaplan University took a huge hit in revenue.

Here is a statement from the 2011 annual report from Donald Graham, CEO of the Washington Post Company, concerning Kaplan's 2011 performance:

"On Kaplan, I'll start with the bad news. Operating income fell from $347 million dollars in 2010 to $89 million dollars in 2011. It won't go up much, if at all, in 2012. We fell that much in part because of new federal regulations on private-sector higher education. We'll be serving 40,000 fewer students in 2012 than in 2010."

Here is the breakdown in Kaplan performance from 2010 vs. 2011:

2011 versus 2010 Kaplan Division Performance

This is 58% of the company's revenue falling off of a cliff. There are other divisions within Kaplan, but their contributions are insignificant compared to the 'higher education' division of Kaplan which brings in the bulk of the Washington Post Company's revenue.

The Washington Post appears to be all-in with Kaplan University at this point.

I haven't even mentioned the newspaper division, which has been suffering steep losses.

I wonder how long this company can keep this up?

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.