Carnegie Learning Acquisition Won't Bring Apollo Group To Profitability

| About: Apollo Education (APOL)

Times are tough, and the US unemployment rate is exceptionally high. As the saying goes, when the going gets tough, the tough get going. So yes, it's time to get tough in this rough unemployment market. You've got to keep gaining knowledge and trudging forward until you reach your destination. And that's where Apollo Group (NASDAQ:APOL) comes in: The Phoenix-based company aims to provide private education for the masses.

Why are we talking about Apollo Group? To push ahead of the normal competing pack of companies providing post-secondary education -- DeVry Inc. (NYSE:DV), Strayer Education Inc. (NASDAQ:STRA), National American University Holdings, Inc. (NASDAQ:NAUH) and Career Education Corp. (NASDAQ:CECO) -- Apollo Group has agreed to buy math tutoring provider Carnegie Learning PLC. Of the $96.5 million sale price, $75 million is already paid in cash, with the rest to be paid over the coming 10 years. The buyout includes the Cognitive Tutor software business, along with any related software from the Carnegie Mellon University.

"Carnegie Learning has developed what we believe is a differentiated approach to learning that will help the students in all of our universities achieve classroom success," said Chas Edelstein, co-CEO of Apollo Group. "In Carnegie Learning, we are working with a talented team and a market leader in adaptive learning. We are also exploring opportunities for further collaboration with Carnegie Mellon University in the science of learning." Sounds good to me.

Yes, education is a business, and the revenue counts as much as it does for any other business. In the case of Apollo Group, it seems to be rising over time. Increased promotional costs and instructional expenses only demonstrate the increased number of admissions. All that matters is that interest income has declined to $3 million in 2010 from $12.6 million in 2009, and seems to have been dropping steadily since 2007. The reason may be this: Apollo Global, the merger between the Carlyle Group and the Apollo Group (holding the majority of shares), can't get proper returns on education investments. It sure seems possible, with the alarming number of educational loan defaults and drop-outs.

With around 14 million Americans unemployed, further education does seem to be the way out. But submerged in debt, how can Americans afford costly educational programs when they don't even know will come to fruition?

Looking at the latest Q3 report, it seems Apollo students are more inclined toward bachelor's degrees, indicated by the increasing revenue in the bachelors degree segment and decreasing revenue in other degrees' segments. To drive home my previous point, the lower percentage of new degreed enrollment shows the lack of motivation of people to continue studying.

This act of acquisition make help increase the market share of the company, thus affecting revenues. But even before we scrutinize the company, we must take the current state of the industry into account, and that's what leads me to think there's a rough road ahead. The stock price has fallen by 45% since January 2009, and if the US unemployment situation doesn't improve, it will only further deteriorate.

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

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , Education & Training Services
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here