2U's (NASDAQ:TWOU) Q1: Beats On Revenue But Quarterly Guidance Underwhelms
Online education platform, 2U (NASDAQ:TWOU) announced better-than-expected results in Q1 CY2024, with revenue down 16.8% year on year to $198.4 million. On the other hand, next quarter's revenue guidance of $192.5 million was less impressive, coming in 1.6% below analysts' estimates. It made a non-GAAP loss of $0.22 per share, down from its loss of $0.10 per share in the same quarter last year.
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2U (TWOU) Q1 CY2024 Highlights:
- Revenue: $198.4 million vs analyst estimates of $195.9 million (1.3% beat)
- EPS (non-GAAP): -$0.22 vs analyst estimates of -$0.34 (35.8% beat)
- Revenue Guidance for Q2 CY2024 is $192.5 million at the midpoint, below analyst estimates of $195.7 million
- The company reconfirmed its revenue guidance for the full year of $810 million at the midpoint
- Gross Margin (GAAP): 71.5%, in line with the same quarter last year
- Free Cash Flow of $72.07 million, up from $835,000 in the previous quarter
- Market Capitalization: $20.6 million
"With our leading position in the education industry, 2U has a significant opportunity to respond to and support the current technology moment, where advances in generative AI are driving strong demand for workforce development," said Paul Lalljie, Chief Executive Officer of 2U.
Originally named 2tor after the founder's dog Tor, 2U (NASDAQ:TWOU) provides software for universities and colleges to deliver online degree programs and courses.
Education Software
The overwhelming trend of moving work, life and consumption of content online is starting to catch up with the education sector that has until recently stuck to providing courses and degrees in the same way as they did decades ago - in person. The COVID pandemic massively accelerated adoption of online education and has forced institutions to invest in creating digital courses, which drives demand for the software that enables it.
Sales Growth
As you can see below, 2U's revenue growth has been unimpressive over the last three years, growing from $232.5 million in Q1 2021 to $198.4 million this quarter.
This quarter, 2U's revenue was down 16.8% year on year, which might disappointment some shareholders.
Next quarter, 2U is guiding for a 13.3% year-on-year revenue decline to $192.5 million, a further deceleration from the 8% year-on-year decrease it recorded in the same quarter last year.
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Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. 2U's free cash flow came in at $72.07 million in Q1, up 360% year on year.
2U broke even from a free cash flow perspective over the last 12 months. This below-average FCF margin stems from 2U's need to reinvest in its business to penetrate the market.
Key Takeaways from 2U's Q1 Results
We were happy to see 2U's revenue and EPS outperform Wall Street's expectations this quarter. On the other hand, its gross margin shrunk and revenue guidance for next quarter missed analysts' expectations. Overall, we think it was a decent quarter. The stock is up 3.2% after reporting and currently trades at $0.28 per share.
So should you invest in 2U right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
