This company is a prime short. It's got a model that doesn't scale. They experience huge marketing burn trying to find students, high churn rates because those students don't graduate and work in cash-strapped states where SHOCK! those states don't want to reimburse them for their 'education tools.' Oh, and even at 17.5 trade at 50x trailing earnings. Now they have the bright idea of building physical schools. Which for this management team can only end badly. Take a look, they have a course that's for self-directed learners...think someone that has other things that keeps them from doing traditional school; but instead they're introducing this curriculum to the inner cities instead where stunningly, people don't do the courses and are lagging behind academically. This is STILL wildly overvalued, it might be a fraud if you look at some of their tactics and the future looks dim. It should be trading in the low single-digits and I think it gets there by the end of the year.
Everyone is entitled to their own opinion but not their own facts. Each of your points is either erroneous or slanted. Let's take them one at a time.
"This company is a prime short. It's got a model that doesn't scale."
Revenue has grown from 226M in 2008 to probably close to 700M this year. I would say they are scaling very nicely. Students served has risen from 40,000 at the end of 2008 to over 147,000 now.
"They experience huge marketing burn trying to find students, high churn rates because those students don't graduate and work in cash-strapped states where SHOCK! those states don't want to reimburse them for their 'education tools.' "
Of course LRN has marketing expenses. They are included in with G&A in their financial statements but taken together G&A and S&M run only about 33% of revenue. Thus marketing is not a "huge" cost as you imply. As for churn rates they have actually been going down lately and in 2012 the number of students served has actually increased. In any event K12 offers a radically different service from the traditional means of education. How does one determine what a high churn rate is? Compared to what? The dropout rate in the public schools? The dropout rate among those who are doing poorly in schools? There is no means of comparison.
States don't want to reimburse them for their educational tools? I don't even know what that means. If they didn't want K12 why would they contract with them in the first place? If the states don't want to pay the cost of K12 after contracting with them then they are breaking their contract. And the growth of K12 in new states and the increase in virtual school caps over the past few years are a clear indication that they are becoming a much more attractive option.
Beware of those who disparage K12 on this board and in articles on various websites. Some may be funded by those who are adversely impacted by the rise of alternate education (teachers unions and administrators). K12's business model is a game changer and directly challenges many of the powerful institutions that have been milking the educational budgets of states for decades. K12 threatens to take away their monopoly power. This they can't stand so they put up straw man arguments and other emotional rants to try and make their case. But the growth of virtual schools continues because it is an attractive option for many parents and students. K12's explosive growth is evidence enough that they are a legitimate alternative to the failed public schools.
Imagine that - the consumer actually getting a choice in education! What a radical idea!
Their revenue comes from being reimbursed by cash-strapped states. I don't know if you've been paying attention to the terrible cuts that are happening nationwide with state budgets but education costs are getting squeezed. And you have lots of these students that don't finish the curriculum because the original LRN model was designed for self-starter students...but, naturally, there's no profit in those rare-type of students so instead they farmed this curriculum out to at-risk students which really isn't 'better' education per se.
Take a look at the cost dynamics. You can spout top-line growth and that's great but it tells half the story. This company still has trouble turning a profit or when it does it has a razor-thin margin because the costs to fuel that growth are 1:1 with the attainment of that revenue. THAT IS WHAT A NON-SCALABLE MODEL LOOKS LIKE. Your marginal costs are constant and don't decline. You don't get to value this company like AMZN and just look at top-line growth. Heck, AMZN shouldn't be valued like AMZN is being valued.
As for your paranoid 'the world is paying people to bash this company' you really need to give yourself a healthy dose of skepticism on most of the for-profit educational companies, in general. They're not great investments. You can believe in the cause, by all means. Hey, however folks wanna do the educational thing, that's great. But from a financial perspective, these are awful investments especially at these valuations.