TWOU — For-Profit Education with an “F” in Investability

Not Investable — Short Term Price Target $14 ·       

 

2U (NASDAQ:TWOU):
It’s NOT really an SaaS company.  

 

In reality, it is a for-profit outsourced online degree provider founded almost eight years ago, yet still generates ~85% of revenues from only 4 clients.

• ·        Stock irrationally doubled due to economically inconsequential and highly controversial Yale deal that was denied accreditation on first try
• ·        2U’s addressable market is tiny, there are dozens of competitors, and its contract economics are unattractive
• ·        Insider selling and recent capital raise suggest that management thinks stock is overvalued and likely to keep burning cash for next several years
• ·        Current valuation insane even when benched against actual SaaS companies … ~67%+ downside from current levels.  

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