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.
States are indeed cash strapped. But this is another reason why K12 will continue to do well. A student using K12 costs the state about 1/2 what it would cost to educate that student in a bricks and mortar school. Why would the state turn around and not allow virtual schools when they are saving money on the margin?
As for the type of students who use K12, Packard has been very upfront that many of K12 students are those who have not done well in a regular school. The criteria of success with K12 for those students is not how they do compared to regular students - they start well behind when they begin - but is if they begin to catch up somewhat in K12. K12 also offer a flexible for military families, for those who oppose the culture of regular schools and those who homeschool for religious reasons.
You are incorrect on the cost dynamics because you have not looked closely enough at the financials. Net profit is skewed by many things including acquisition costs, integration costs, etc. A better metric is EBIDTA. And here K12 has done very well. Here are the EDITDA in 1,000s for the past few years:
Cash flow, another excellent metric has also grown rapidly.
I'd say they are scaling very nicely.
I do have a healthy does of skepticism for for profit educational companies because most of them are at the college level and are dependent on federal loans for their students. K12, however, is exclusively at the 1-12 grade level and not dependent on loans. They have both a price and quality advantage over the brick and mortar schools when comparisons are done on an apples to apple basis.
K12 now sells for an EV/OCF ratio of just 7.9 (5.5 if the net receivables are included as cash). The PE based on EBIDTA is 11. The PS is just 1.2 and the EV/sales is only 1. Those are all very low numbers for a company growing as fast as is K12. I am very comfortable with my investment in K12 and expect it to be quite profitable. If you disagree, fine. That's why they have a stock market.