KSTHANE

Scrutinizing Apollo: The Deeper You Look, The More Problems You See

My favorite line is the one where he says that Apollo launched major advertising to keep visibility and enrollments up. Maybe the reason they're advertising a lot more now is because it's a hell of a lot cheaper? Maybe their advertising is more visible (radio and TV spots as opposed to online ads) because they're chasing higher quality students which is an indicator of a higher quality program?

I also like that his reasoning includes that "the administration" will be watchful of students racking up piles of debt getting an education from Phoenix. First off, currently having 350,000 students is not some random fluke from clever advertising and marketing...it's an indicator of value and quality. Second, if the administration wants to target a racket in education they should focus on the far larger pool of people going to public schools that are racking up debt and not repaying. Those students aren't usually nearly as prepared to pay debts because they don't already have jobs like many APOL students do. "The administration" targeting a relatively small pool of non-trad students at Phoenix would be counterproductive to what it actually wants to accomplish.

Apollo Group's Strong Earnings Are Misleading

Ah ha ha ha ha. The lawsuit that Citron highlighted in this sensationalistic piece has already been voluntarily dropped by the plaintiffs. That's what happens when you have no case.

The government's not even participating in the qui tam suit; there's probably not much merit to that one either.

Apollo Group's Strong Earnings Are Misleading

Andrew,

If the company was really manipulating numbers in a material way shouldn't there be a corresponding increase in the company's accounts receivable and then bad debt expense? Bad debt expense has only risen 80bps as a percent of revenue over the last 4 years, and has actually declined from 4.1% to 3.3% in the last 3 years. Accounts receivable have been relatively steady as well.

Also, were you aware that the cohort default rates are measured over 2 year periods in arrears? It seems like it would be difficult to manipulate that type of number.

Apollo is the largest university in the world and by far receives the most Title IV loan funding of any other education provider. They have had a policy of returning gov't money to the gov't in the case of dropouts for several years. Any movement of Title IV money is highly scrutinized by the DOE, I'm not sure that they would have just glossed over this in the many comprehensive reviews that have been done on the company in the past.

Last, the title of your report on Citron yesterday was just too sensationalistic for my tastes: "Citron Releases the Document that The Apollo Group (NASDAQ:APOL) Does Not Want You or the US Government to See." What was new in your report that the government is not aware of? Do you think they're not aware of a court case that was filed? Do you think they're not aware of the qui tam lawsuit that has been there forever? Do you think they're not aware that they themselves have APOL on month to month certification for Title IV?

The only thing your report does is highlight a new regulatory disclosure in a 10-Q that was brought on by students...not by the DOE, not by the SEC, not by the DOJ, but by 3 students.

Oh, and don't let me forget how ridiculous it is to assume that the company just had a one time bump in earnings due to price increases. First of all, this is the second quarter in which the company has experienced some tailwinds from price increases, and second of all enrollments jumped y/y as well. If pricing had stayed the same the company would have seen positive earnings results just from the higher enrollment, which you completely failed to mention.