Strategic Education, Inc. or SEI STRA has been benefiting from improving enrollment trends, underlying operating leverage and significant merger synergies. Both the universities of the company, namely Strayer and Capella, provide convenient, accessible and flexible educational programs. These programs, which are designed to specifically meet the educational needs of working adults, bode well. However, a continuous decline in revenue per student at Strayer, due to an unfavorable mix of students, is a cause of concern. Also, stringent regulations add to the woes.
Key Growth Drivers
Improving Enrollment: Both Strayer and Capella Universities have been exhibiting stellar enrollment results. In the fourth quarter of 2018, Strayer University’s total enrollment grew 8.9%, new student enrollments rose 9.2% and continuing student enrollments increased 8.9% from the year-ago period. On the other hand, Capella reported a 10.6% year-over-year increase in new student enrollment in the fourth quarter, after the metric recorded 13.2% growth in the third quarter.
Notably, during the third quarter of 2018, both the segments, Strayer and Capella, exhibited stellar enrollments, posting multi-year highs. Strayer's total enrollment grew 9% year over year, marking the highest growth rate for the university since 2010. Meanwhile, Strayer University's new student enrollment increased 11.9% year over year, representing the university's 9th consecutive quarter of new student growth.
Competency-Based Learning Model: Continuous innovation and course updates expand the company’s product portfolio, which in turn boost enrollments and drive long-term growth. It is focused on providing programs based on a “competency-based learning model and direct assessment capabilities”. Notably, FlexPath is one of these innovations. Capella’s FlexPath continues to be one of the company’s fastest growing programs, as it allows students to focus on leveraging their skills and knowledge gained during professional hours.
FlexPath, which has been performing significantly well, now comprises 28% of Capella's Bachelor and Master's degree enrollment. Enrollment of FlexPath grew 42% in the fourth quarter.
Non-Degree Programs: Employers generally face difficulties in hiring skilled workers in the U.S. economy. The problem lies in the gap between skills required and the skill-set offered by the workforce. Capella intends to focus on capitalizing on this gap, and is therefore investing in non-degree programs in the field of software, engineering and coding. Revenues in the segment jumped nearly 2.7 times from the year-ago period to $3.5 million in fourth-quarter 2018, backed by higher revenues from DevMountain, Hackbright Academy and Sophia.
Declining revenue per student in Strayer University is a pressing concern. In 2018, Strayer University’s revenue per student declined 390 basis points (bps). For 2019, management expects the metric to decline between 50 bps and 100 bps on an annual basis, owing to factors such as continued use of scholarships and ongoing mix shift to lower-paying corporate-sponsored students. Revenue per student fell approximately 2%, 6% and 5% in the third, second and first quarters of 2018, respectively.
Meanwhile, like many other for-profit education companies like American Public Education, Inc. APEI, Adtalem Global Education Inc. ATGE and Universal Technical Institute, Inc. UTI, Strategic Education derives a significant portion of its revenues from Title IV federal aid programs. These programs are subject to stringent regulations of the Department of Education and accrediting agencies recognized by the Secretary of Education. A significant percentage of the company’s students rely on Title IV funds to meet education expenses.
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