Former edtech unicorn’s stock price plunges as universities take DIY approach to online learning

The edtech giant 2U is experiencing market and financial pressures severe enough that earlier this month it warned investors that there was “substantial doubt about its ability to continue as a going concern” if it could not secure more capital or reduce its debt.

This represents a significant reversal of fortune. Four years after 2U – an online programme manager (OPM) – went public in 2014, its stock traded at close to US$100. This year, it has been hovering at or under US$1 due to signs of trouble – including some universities ending their contracts.

Following 2U’s announcement of its doubt about remaining “going concern,” major investment firms downgraded the stock; Goldman Sachs dropped its coverage of 2U entirely.

Background

The worsening outlook for 2U reflects a weakening role for OPMs in the global education market. By way of background, OPMs help universities and colleges bring their programmes online. They typically offer a broad basket of services – everything from strategic advice and instructional design to technology and systems to recruitment, retention, and student support. Universities remain responsible for core academic functions, notably admissions, teaching, and curriculum. OPMs typically also cover the upfront costs of converting an existing university programme for online delivery, in return for which they receive a portion of the resulting programme revenues.

OPMs’ heyday occurred in the COVID-19 pandemic amid the rush to online learning as face-to-face teaching was severely restricted or ended while infection-prevention measures were most strongly and widely enforced. Universities and other institutions needed extensive support to shift their business model, and OPMs represented the most efficient way of doing so for many of them.

For 2U, the pandemic seemed to be an ideal time to expand its reach, and it famously bought the online learning platform edX in 2021, giving it:

• A combined portfolio of more than 3,500 offerings from 230 top universities and corporations;
• Access to edX’s 39 million users all over the world.

The bet was that by buying edX’s existing audience, 2U could reduce the cost of acquiring students overall. 2U took on debt for the acquisition, but revenue gains did not follow to offset the carrying costs of that debt. Quite the opposite: revenue declined steadily after the acquisition and staff were laid off.

2U was not the only OPM facing serious challenges in 2021 and 2022 as (1) demand for online learning abated due to the elimination of COVID-19 travel restrictions, (2) universities became more interested in and adept at running their own online programming and delivery.

Across the board, universities began to ask for shorter contracts with OPM providers and more share of revenue – or no contracts at all:

• In 2022, Pearson and Arizona State University (ASU) ended a 10-year contract. The ASU account composed about one-third of Pearson's OPM revenue at the time. Pearson subsequently handed over its online services department to a private equity firm.
• In 2023, University of South California (USC) ended its relationship with 2U by paying US$40 million, and 2U’s stock fell 57% within the span of a day.

Scrutiny of OPMs increases

Adding to OPMs’ current challenge is momentum in the US for the Biden administration to “crack down” on relationships between colleges and OPMs. There is a formal review underway of the legislation allowing colleges to pay OPMs commission based on the amount of tuition revenue they help to generate. Fuelling the review is a worry that OPMs’ marketing to students is diluting the perceived value of higher education and encouraging students enrol in “low-value” programmes instead of degrees.

Online learning participation dips

The number of US students enrolled in at least one online course dropped from 57% in 2021/22 to 53% in 2022/23 according to National Center for Education Statistics data released in January 2024. Participation remains higher than before the pandemic, but industry experts say detailed data shows that students who were exclusively enrolled in online courses are more likely to be pivoting to entirely in-person classes than to a blend of online/in-person instruction.

At the same time, participation in online learning dipped by 2 percentage points in Europe between 2021 and 2022.

Despite the slight dip in online course enrolments, however, the fact remains that there are millions of students worldwide who require more affordable options than in-person study abroad. The online learning market may be evolving, but it is certainly here to stay.

For additional background, please see:

• “Major MOOC provider edX acquired by online programme manager 2U”
• “Online programme manager (OPM) market under pressure this year”