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Capella Acquires Sophia Learning

Zacks Equity Research

Capella Education Company (CPLA), a leading provider of online post-secondary education, recently announced that it has acquired the remaining interest in social education company Sophia Learning, LLC.

Capella Education had acquired the majority interest in Sophia Learning in January 2011. With the purchase of the remaining shares, Capella Education now owns the entire company. The Sophia site makes available free academic tutorials posted by hundreds of teachers that are taught in a variety of ways. Around 5000 schools and universities across 170 countries use the Sophia site.

Management believes the Sophia acquisition goes well with Capella Education’s long-term strategy of making higher education accessible and reducing the cost of education.

Capella Education through its wholly owned subsidiary, Capella University, provides online post-secondary education services in the United States focused primarily on working adults. In addition, the company also provides online education through Resource Development International which provides UK University qualifications online by distance learning.

Like most education companies, Capella is witnessing a fall in enrollment. After falling 7.5% in the third quarter of 2011, total active enrollment dropped 4.5% in the fourth quarter. Capella now expects total enrollment to decline at a rate between 5% and 6% in the first quarter of 2012.

Another education company, Apollo Group (APOL) released second quarter 2012 results in late March. The company witnessed a 12.2% decrease in enrollment in the quarter and expects new enrollment growth to remain volatile through the rest of fiscal 2012.

However, American Public Education, Inc. (APEI) witnessed a sharp 36% rise in enrollment in the fourth quarter of 2011. It expects first quarter 2012 net enrollment to rise between 20% and 22% over the prior-year period.

Our Recommendation

We currently have a long-term Neutral recommendation on Capella Education. The stocks carry a Zacks #3 Rank (a short-term ‘Hold’ rating).

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