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2U: Don't Expect A Huge Tailwind Out Of The Coronavirus

May 05, 2020 11:58 AM ET2U, Inc. (TWOU)6 Comments
Gary Alexander profile picture
Gary Alexander


  • Shares of 2U have drifted ~10% higher after the company reported mixed Q1 results that beat on EPS but were in-line on revenues.
  • Investors have expected the coronavirus to push up enrollment in 2U's online education programs.
  • So far, however, we've only seen enrollee growth in 2U's core grad programs decelerate.
  • 2U's cash buffer also remains quite thin, especially for a company that has to invest a lot upfront to get new programs running.

Though almost every company in the stock market has been routed this year, a select few technology stocks have seen their values maintain or even rise. Companies in this coveted group include e-commerce names like Amazon (AMZN), remote work stocks like Zoom (ZM) and Docusign (DOCU), as well as online education provider 2U (NASDAQ:TWOU). Though 2U briefly lost more than half of its value when the market hit its nadir in mid-March, the stock has come roaring back since and recovered all of its year-to-date losses, especially after the company's recent Q1 earnings release.

Data by YCharts

I have long been bearish on this name, and the coronavirus and the shifting of education to online venues hasn't changed my thinking on this stock. Investors should continue to steer clear of 2U and invest in more beaten-down areas of the tech sector.

Is the coronavirus really going to lift 2U's demand?

The majority of the market is betting that the shelter-in-place order and the increased openness to online education will drive a sudden spike in demand for 2U's offerings. 2U's CEO, Christopher Paucek, has posited on the Q1 earnings call that he expects the coronavirus to be a long-term tailwind to the company:

First, we all witnessed how COVID-19 created an urgent need for every university to move their programs online. This rush to remote learning happened almost overnight. A lot has changed in the last six weeks, and today we know much more based on the daily conversations we've been having with partners across our portfolio. We now believe that this forced transition online will substantially increase the demand from universities for our core product offerings and new solutions. The need to deliver truly high quality online programs not just remote live lectures, at a time when universities are facing unprecedented financial constraints and challenges makes our

This article was written by

Gary Alexander profile picture
With combined experience of covering technology companies on Wall Street and working in Silicon Valley, and serving as an outside adviser to several seed-round startups, Gary Alexander has exposure to many of the themes shaping the industry today. He has been a regular contributor on Seeking Alpha since 2017. He has been quoted in many web publications and his articles are syndicated to company pages in popular trading apps like Robinhood.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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