Is 2U Headed For Recovery?

Is 2U Headed For Recovery?

Morning folks,

We often spend our time focusing on the great winners in our portfolios, when really, we can typically learn a lot more from our losers. If nothing else, deep-diving into our mistakes may prevent us from repeating them again.

Online education company 2U Inc. was once a great winner for us — up well over 100% at one stage. The thesis was pretty straightforward — demand for higher education is rising and the move to online will make it more accessible both geographically and financially. However, 2U announced in 2019 that it was seeing far less demand for its services than it had anticipated, causing the stock to collapse. There was even chatter of a private-equity buyout.

However, 2U has been a huge winner since the outbreak of COVID-19, with the stock now up 63% year-to-date (and almost break-even on our scorecard). It appears that while most of the headlines were focusing on the “work-from-home” stocks, more attention should have been spent on the “learn-from-home” stocks. 

Speaking of which, we also have Chegg on our shortlist — currently up 83% year-to-date.

2U Inc. is now, I would argue, in quite an enviable position. They have the skills and resources to deploy online learning portals to major universities in a short period of time. The bear argument against 2U, and indeed one of the reasons they saw a drop in demand, was that the technology had caught up on the company’s offering and that universities, with all their in-house skills, could do it themselves.

The speed of the outbreak and the rush to establish programs before the fall now means that many of these universities will have to move-forward their plans to offer online learning, with Harvard and Yale announcing their intention to do so earlier this week.

2U was always a play on the widespread adoption of online learning. For many, that meant a long-term investment that may not pan out for many years, even, perhaps, decades. Reports suggested that by 2025, the market could grow to $75 billion, from around $30 billion today. Surely that time-frame has now been cut dramatically, and, as one of the biggest players in the space, 2U will likely be a beneficiary.


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