Sector financial performance:

This company that primarily provides online postsecondary, degree-granting education has been grouped into private university –online sector in education industry.

It seems that demand for online or on-campus degree granting programs from non-traditional students – working students mainly has been weak in the past several years  as indicated by decreasing enrollment for the companies in this sector(about 2-5% organic decrease annually ). Shrinking demand resulted in increase in intense in competition for students, which put huge pressure on admission. Companies have to spend more on promotion and marketing such as scholarship.

As enrollment/revenue decreases, companies’ profitability has been hurt. As a reaction to shrinking cash flow, companies have to keep raising tuition while decreasing enrollment, cutting expenses, and closing underperformance programs.  It seems those measurement have been working to help improve companies’ profitability since 2017. However, for those that have to raise tuition, they may have to experience continuingly decrease in enrollment and thus revenue and have had to retire more unprofitable programs.

As a result of impacts described above, almost all of companies’ gross margins (include depreciation and amortization, rent, and exclude marketing expenses) went down between 2015 and 2017. Our data indicate those companies’ gross margins were between 42-68% (average 56%) with admission and marketing experience as percentage of sales of 27% (average) and G&A as percentage of sale of 12% (average) in 2017. The average operating margin among those companies is 7%. Since 2017, the average gross margin was improved to about 62% probably due to rising tuition and teach-out of schools. And. With help costs saving in SG&A, the operating margin up to about 8.5% in 2018.

According to our analysis, the current companies’ enterprise price/EBI ratio is between 24 and 33and enterprise price/sales is between 0.4-5.2.

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Company performance:

It seems that the demand for this company’s online degree programs has been weak in the past several years as indicated by continuing decrease in enrollment. However, it seems that this company has still been able to raise its tuition fees at an annual rate of 2-3%.

The first six months of fiscal 2018 compared with the same period of the 2017(ended 20180630)

Revenue decreased about 6% (3% for 2Q) primarily due to decrease 9.8% (8.9% for 2Q) in enrollment (weekly average) offset by increase in tuition fees.

The fiscal 2017 compared with the 2016

Revenue decreased about 9.2% primarily due to decrease 9.8% in enrollment (weekly average) offset by increase of about 2% in tuition fees.

The first nine months of fiscal 2017 compared with the same period of the 2016

Revenue decreased about 8.4% primarily due to decrease 9.6% in enrollment (weekly average) offset by increase of about 2% in tuition fees.

Fiscal 2016 compared with 2015

Revenue decreased about 6.2% primarily due to decrease 7.2% in enrollment (weekly average) offset by increase of about 3% in tuition fees.

Fiscal 2015 compared with 2014

Revenue decreased about 12% primarily due to decrease 14.6% in enrollment (weekly average) offset by increase of about 2.4% in tuition fees.

Its gross margin (exclude admission expenses and marketing) went down about 60 basis points to about 50% in 2017 primarily due to deleverage of expenses as a result of decreased revenue.  During the same time, the SG&A as percentage of sales stay around 46%. Its operating margin thus went down to about 60 basis points to about 4% in 2017. In 2018, gross margin was improved to 52% due to decline in bad debts expenses and other expenses. However, due to bigger increase in SG&A as a result of increasing marketing costs, its operating margin was still flat at about 4% in 2018.  As a result of costs cutting, its cash flow has not gone down much as it revenue had.

Stock price

This stock currently has an enterprise price/EBI ratio of 28 ($10.5). We think that its stock is being relatively overvalued considering its continuously declining enrollment and limited space in rising tuition.