On Tuesday, 2U, Inc. (NASDAQ: NASDAQ:TWOU), an education technology company, maintained its Market Perform rating from investment firm William Blair, following a notable decline in after-hours trading. The stock experienced a sharp drop of approximately 23%, which would position the shares at 1.1 times the firm's 2024 revenue estimate and 7.3 times the 2024 adjusted EBITDA estimate.
William Blair highlighted the continuation of disappointing trends this quarter for 2U, Inc. Despite the company's strategic shift to prioritize near-term profit and free cash flow, concerns are rising due to the slowdown in revenue growth and the pressing issue of the company's debt load. The firm's outlook on the company remains uncertain, with regulatory and oversight challenges still present, although they seem to be moderating.
The investment firm pointed out that the balance of risks and rewards for 2U's shares appears relatively even following the anticipated sell-off. This assessment leads to the decision to maintain the Market Perform rating. William Blair also outlined several risks that could impact 2U's performance. These include the complexity of the company's business model, which involves multiple decision-makers such as students, educational institutions, and regulators, and potential changes to the regulatory framework governing revenue share arrangements.
Further risks involve uncertainties in student demand for higher education enrollments, both in the short and long term. Additionally, the firm noted the integration risk associated with 2U's partnership with edX, the competitive landscape, and the potential unforeseen impacts of strategic changes on the business, including effects on existing contracts, service levels provided to university partners and learners, and company culture.
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