$TWOU has BEEN UP A LOT WITH A +65% YTD

It is the next Blue Apron $APRN

Or is it a real #SaaS such as $TWLO $DDOG or $SNOW

My take on this [LONG THREAD]

Let’s introduce our suspect

$TWOU is a SaaS for EdTech: It provides universities and colleges with a cloud platform for building and delivering their courses online

$TWOU has a $2.6B MC and has served 180k+ graduates

A very simple business model! A closer look

Making money

$TWOU partners with schools to digitise their courses and gets a cut from the tuition fees for students enrolled through its online platform

Spending money

Once $TWOU has an agreement to digitise the content, they have to spend the big on actually digitising the content

Then, they have to spend the again on recruiting students and supporting faculty staff and enrolled students

How does that translate into an income statement? Here is a look at Q2 ’20

Revenue of $183m (+35% YoY growth)

Curriculum and teaching costs of $26m

Servicing and support costs of $30m

Technology and content development cost of $37m

Marketing and sales costs of $98m

G&A costs of $40m

EBIT of ($49m)

High marketing spend

Obviously, high marketing spend are not that alarming as invested today generates tomorrow

However, does this hold for $TWOU? Here is what they have to say about their marketing spend

8 Months

“In our Graduate Program Segment (GPS), our marketing and sales expense in any period generates student enrolments eight months later, on average.”

“We then generate revenue as students progress through their programs, which generally occurs over a two-year period following initial enrolment.” - SEC Fillings

GPS represents $116m out of their $183m in revenue (64% of rev.)

6 Months

“In our Alternative Credential Segment (ACS), our marketing and sales expense in any period generates student enrolments as much as 24 weeks later, on average.“

“We then generate revenue as students progress through their courses, which typically occurs over a two- to six-month period following initial enrolment.” - SEC Fillings

ACS represents $67m out of their $183m in revenue (36% of rev.)

Leading to a WEAK marketing performance

The business generates sales 6 to 8 months after their marketing spend

With the acquisitions of Trilogy and GetSmarter they are getting into Short Courses and Bootcamps (ACS) which translates a bit faster into cash

However, should $TWOU nat have focussed first on these short courses? Is $TWOU a real #SaaS stock?

The space here is already crowded with Coursera and EdX being well established

It looks like Coursera and EdX are the real SaaS in the game, see for yourself

In 2017, Coursera had 26m users and 40m in 2019

In 2018, it earned an estimated $140m, up from $100 in 2017 (according to Forbes)

It provides short courses, certifications, professional training and full degrees

Universities themselves create the content

Coursera and EdX’s user acquisitions strategy might be better as well:

You want to learn something new, let’s say “data science for beginners” Just type that into Google

On the first page, you’ll land on a course “Introduction to Data Science Specialization” with over 39.000 students already enrolled

Give it a shot with your 1-week free trial and come back for more courses in the future, you are hooked by now!

Are Coursera and EdX the real #SaaS?

Provide a platform and do not create the majority of the content themselves

Rapid customer acquisition with free trials and increased spending per student over time as they from small courses to specialisations to full degrees

Is $TWOU more of a $APRN?

Large customer acquisition costs

8 months before locking in customer

They create, promote and support all of their products, meaning big spend

My conclusion

$TWOU is active in a sector that benefits from secular tailwinds as education is moving online and #COVID has only helped forward

$TWOU is entering the short courses and bootcamps sector heavily which could improve the performance of its marketing spend

Marketing is a red flag to big to ignore

$TWOU marketing performance is scary, spending $100m a quarter to get 180k graduates (accumulated) is not “good enough” for now

Late entry into short courses and bootcamps is a red flag, Coursera and EdX have already cornered a part of the market

$TWOU is not a real #SaaS as they have to build, support and market all of their courses

Of course, this is a market and the recent +65% gain shows that others are more bullish

Closely monitoring the EdTech space and hope to see Coursera go public

I’d be very happy to discuss!

Hope you liked this thread!

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