2U announced layoffs across the board and changes to its business strategy on Thursday as it refocuses the company around edX, a leading MOOC platform he acquired last year.
The Online Program Management Company, or OPM, has grown its business helping colleges launch and manage online programs by offering services such as marketing, recruiting, and course design. In return, institutions give 2U a reduction in tuition revenue from their programs.
2U officials announced that the company is updating this part of the business model, saying it will offer tuition-sharing agreements starting at 35% of a program’s revenue – with higher rates available for colleges that want more services.
The new tuition-sharing model comes amid growing criticism of the deals. Some lawmakers and policy advocates say tuition-sharing agreements lead OPMs to aggressively recruit students into online programs to boost their own revenue.
More recently, the US House Committee on Appropriations called on the Department of Education to remove regulatory guidelines which allows companies to use these templates for service packages including recruitment. And a recent report from the U.S. Government Accountability Office found that Department Ed was not doing enough to ensure OPM contracts complied with federal laws and guidelines to prevent hiring practices. aggressive.
The pressure also increased on 2U.
A recent Wall Street Journal report found that corporate recruiters used “.edu” email addresses to contact prospective students, as well as calls from the area codes of the universities whose programs they marketed. The students told the publication that they were unaware that an outside company was recruiting them into the programs.
2U announced on Friday that the 35% tuition-sharing option would be available to colleges using its core service package, which includes curriculum design and student support. Colleges that want more support services — such as paid digital marketing, curriculum design, and faculty recruitment — will pay higher shares. Depending on the model, tuition sharing arrangements could be as high as 60%.
The company also said it would lower its level of revenue sharing for any college that agrees to significantly reduce online tuition.
Put edX in the center
2U’s overall revenue grew to $241.5 million in the second quarter of 2022, up 1.8% year-over-year. However, revenue from the company’s study program has declined at $143.1 milliondown 2.1% from the previous year.
The company has taken steps to expand its offerings to include more alternative referrals such as boot camps and online courses. The company’s alternate credential segment grew to $98.4 million in the second quarter, up 8.1% from a year earlier.
2U has expanded its alternative education offerings through acquisitions, including taking over Trilogy Education Services in 2019 and edX last year. 2U officials have already expressed their intention to make edX the company’s consumer-facing brand.
2U CEO Chip Paucek doubled down on that strategy on a call with analysts Thursday to discuss company profits.
“Over the past six months, we’ve grown increasingly confident in our platform strategy, which puts edX front and center,” Paucek said. The move is aimed at reducing the company’s marketing costs and generating long-term profitability, he said.
Since becoming a public company in 2014, 2U has never had a profitable year. Its second-quarter results were no different, with the company reporting a net loss of $62.9 million, nearly triple from the same period last year.
The restructuring would result in about $70 million in annual savings, said Paul Lalljie, 2U’s chief financial officer. The company will face restructuring costs between $35 million and $40 million by the time the layoffs are completed.
The cuts will be “in all areas,” Paucek said.
2U announced layoffs by month after Bloomberg reported that Byju’s, an India-based online education provider, offered to buy the company for around $15 a share – a move that valued the OPM at more than $1 billion.
Paucek addressed those reports on Thursday, saying the company does not comment on “rumors.”
“As a public company, you are effectively still for sale,” he said. “And of course you’re going to do what’s right for the shareholders.”