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Edtech company 2U soars on earnings beat

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Yahoo Finance’s Alexis Christoforous and Chip Paucek, 2U CEO, discuss the company’s earnings and outlook for online education.

Video Transcript

ALEXIS CHRISTOFOROUS: The pandemic has changed the way we learn, from kindergarten all the way to postgraduate education. And 2U has played a part in that transformation. It's an education tech company that helps universities offer online degree programs. It just posted a beat on revenue. It lost less money than expected last quarter. The stock is up 95% in just the past 12 months. It's having a pretty good day today as well.

And joining me now is 2U CEO, Chip Paucek. Chip, good to see you. So this is a pretty impressive revenue growth at a time when the economy was contracting during the pandemic. Tell me what drove momentum for you last quarter and last year.

CHIP PAUCEK: Well, online education is here to stay. We partner with great universities, 75 total non-profit universities, to build high quality online degrees, online technical boot camps, and online short courses, in a whole variety of different topics. And so, I would say, we did-- we had a great 2020. And we're pretty excited about the momentum in the business going ahead here in 2021.

You know, I would say at this moment of COVID, it became even more imperative for people to upskill and reskill themselves, whether because they need to get a new job or even in an existing role of some kind, like when e-commerce took over pretty much every industry, reskilling and upskilling the workforce is a big part of what our partners provide. So we did have-- we had a good result last night. And we're pretty excited about where things go from here.

ALEXIS CHRISTOFOROUS: Talk to me about the area that's growing the fastest. Is it-- you know, what degree area is moving quicker? Is it undergrad? Is it master's degrees? And where are you seeing the demand coming from?

CHIP PAUCEK: So we did see demand increase across the board, across all of our product categories. We are a more recent entrant into online undergrad programs. So you might have seen, Alexis, we just announced a great relationship with Morehouse College. Incredible 154-year track record of educating Black men in the country and really needed three million men-- three million Black men have some college credit and haven't completed. So it's an excellent example of a program that we think, of course, can drive growth, but more importantly, does a great thing for the world, allowing people to succeed in their careers.

The other thing I would point to is our alternative credential segment. So 2U is the largest provider of digital non-degree credentials in the country from great nonprofit universities. So a whole range of technical bootcamps in subjects that range from coding to fintech to project management. We have many technical short courses where you might learn a particular skill or you might take a diversity course. So an example of a program that did really well this past year is a Northwestern course on diversity with the national expert, Alvin Tillery. So a whole variety of different opportunities for people to transform their lives through education.

ALEXIS CHRISTOFOROUS: How much of the business that you were able to garner last year and even now is coming from new clients-- universities and colleges that weren't working with you before, but now need to pivot in this COVID world?

CHIP PAUCEK: So there is clearly a digital transformation imperative across all of higher ed. Schools must-- the thing about online learning is when you go shopping today, Alexis, you don't think about, like, I'm going online shopping. You're just going shopping. And you're doing that, most of the time, in both forms. And the reality is, over the next 20 years, you've got a multitrillion dollar market. Education overall-- the total consumption of education is huge. And about 2% of it is digitized.

So there's no question that more and more great universities are turning to companies like 2U to help them transform their entire business and go digital. And, you know, we've been doing this for 13 years. And online education done really well can be great. What we saw over the past year, in many cases, was more of a forced remote learning than it was high quality online education. So when you do it well, not only does the student have a really good outcome, but you're offering a more flexible, affordable, relevant experience for somebody that's meeting them where they need to be met.

Students today are not just the traditional college students that we would have thought of. Working adults need high quality education experiences. And whether it be our Morehouse undergrad program, our program with the London School of Economics-- so we have nine different degrees, online degrees, with the London School of Economics-- this is not only a US-based story, but it's also a worldwide story.

ALEXIS CHRISTOFOROUS: And I know that you're one of the few publicly traded educational technical-- technology--

CHIP PAUCEK: That's right.

ALEXIS CHRISTOFOROUS: --companies out there. You went public in 2014. Do you foresee more companies in your space coming to market, either through traditional IPOs, or we're seeing more and more come to the market through SPACs.

CHIP PAUCEK: Yep, no question. It's been lonely out here in these ed tech hills as a public company. So we've been public for seven years now. Sometimes I can't believe we've actually been public for seven years. But I will tell you, more and more ed tech companies are reaching that point. I would say, our scale, I think, is unique in ed tech. So we just guided to a midpoint of about $925 million. So we're really getting close to that billion dollar mark.

And doing that with-- you know, we just passed 300,000 students inception to date. So I think our scale is something that most of ed tech hasn't seen. But we do see a lot of companies that are on the way. And you're correct that it looks like there's a lot of tech companies that are SPAC targets. I would tell you I think it's great for ed tech. I think it's really important for the world.

What's interesting about education is, as of percent of GDP, it's so big and it's so unusual when you look at the sector. You know, it's right up there with retail in terms of size. And then you look at the companies, and you look at Amazon, of course, and they're massive. And you look at ed tech, and we're one of the largest. So I would say huge runway ahead, great growth opportunities for those that are in ed tech. We're super excited to take advantage of that trend.

But ultimately, it's about delivering societal good at the same time. So ed tech, you know, in our case, if the student wins, the university wins, and then we win. That's the way our employees think. You know, incredibly proud of the 2U team, Alexis, because, you know, we delivered this at a time of real human struggle in the moment of COVID. We have employees worldwide. We have a very large presence in Cape Town, South Africa. And to see what they delivered on behalf of our partners and students over the last 12 months makes me incredibly proud as the founder and CEO.

ALEXIS CHRISTOFOROUS: Well, Chip Paucek, you're doing something right over there at 2U. Thanks so much for joining us. We'll continue to follow your story.

CHIP PAUCEK: Thank you, Alexis.