Coursera (COUR) and 2U (TWOU) Further Confirmation of Thesis and Answers to Good Questions

Overview:

Last week, we published a comprehensive report on Online Education focusing in particular on the positive investment case for Coursera (ticker: COUR). We’re pleased to relay that the piece has received tens of thousands of views on LinkedIn and was the subject of an hour-long interview on RealVision. More podcasts and media interviews are on the way. Given that access to higher education is now a topic debated at the national level, we’re not surprised to see that the piece has gained significant attention.

Better yet, we’ve been receiving many excellent questions coming from the media, University Presidents and professors, and readers and fellow investors. Last week, we had an outstanding call with someone who has been a professor and administrator at two different universities who chose to partner with Coursera at both institutions. Relaying the details of that conversation will address a large number of questions people have been submitting.

 

Why Universities Partner with a Platform Instead of Creating One:

Our contact said the core competency of a university is educating people. They don’t have the money to spend on marketing and student acquisition[1]. The platforms have greater reach, and are better at student recruitment. Working with Coursera enabled students to test classes at a university for free, and then make the decision to pursue a paying degree later[2]. When she moved to a new university, she came with her previous positive experience with Coursera. In addition, the person she worked for in her new position had been at the University of Illinois and was familiar with the success of the Coursera-enabled MBA program there[3]

 

Why These Two Universities Chose Coursera over 2U and EdX:

This professor and administrator looked at both 2U and EdX as potential partners. Her feeling was that the other platforms were more exclusive, and the universities she was teaching at didn’t have the academic reputation to compete on those platforms. Further, she liked Coursera’s larger and broader reach, and thought the other platforms were too small. She also wanted a partner that would offer undergraduate degrees, and at the time, the competitors were focused on graduate degrees.

Our commentary is that Coursera’s registered learner base is almost twice as large as the 2U/EdX combination[4], and we have noted that Coursera’s greater learner base is appealing to university partners for student recruitment. Further, while it can be tempting to focus on a few high-profile schools, most people do not attend or graduate from a top 10 or top 20 university. Coursera has classes from high-end schools, and we think that’s great, but there is a bigger, better business model in helping more people get an education.

Most importantly, our contact has worked with Coursera twice at two different schools, and reports that her relationship with them is excellent. Her plan is to grow with Coursera rather than look for another partner.

 

Other Platforms:

One of the most common questions we’ve gotten over the past week is regarding other platforms. Our original research focused on Coursera, 2U, and EdX, and people want to know who the other potential competitors might be. We posed that question, and our contact thought that the “big three” we had covered were the options that offered a full solution. Her feeling was that other potential partners offered partial solutions. Some were good at student recruitment. Others were good at the video production end of things. But she wanted a full solution, and there were three options she considered[5]

 

Notes on the Experience of Working with Coursera:

This administrator likes the new Coursera pricing which favors universities that do more business with the company. She plans to add two additional degree programs to the current one on the platform. This response was exactly what Coursera hoped for with the new pricing plan.

The university pays for the curriculum development, filming the lectures, and designing the tests. Coursera pays for processing and getting the content loaded onto the platform, and for student recruitment.

The degrees being offered will include both in-person and online options.

The current online degree being offered through Coursera had 150-200 online students in year one and 200-300 online students in year two. They expect 30% annual growth with a target of 1,500 online students. This is for a class that has 600-800 on-campus students so offering an online option has the potential to triple the number of students in the program.

We also think it’s important to note that this degree program is for students who started college and didn’t finish. Completing this program will get these students a degree and open up a wide variety of job and career options for them. It’s also helpful for foreign students where a traditional college degree is a three-year program. They need to finish that fourth year to qualify for a US-based graduate program. This degree program is popular with a large number of employers who pay for the continuing education.

The class she taught at her prior school had 50,000 online students for a class that had 25-100 on-campus students. The class was free online, and some of the students later pursued degrees at her university[6].

She talked about how offering large online classes provided benefits in terms of brand recognition for the university and a pipeline for high-revenue future degree students.

Universities are now looking at models to pay professors based on student engagement and intellectual property. Professors who can drive a large online following could get paid for it.

She thinks every university needs to be in the online space and that partnering with a platform is the best way to do that.

She also thinks that Coursera delivers a lot of value by bringing in corporate partners. The universities work with Coursera and with corporations to design certification and degree programs that result in jobs for the students. The students sign up for the programs because they know there’s a job waiting for them at the end.

 

Conclusion:

This call provided additional confirmation of our positive thesis on online education in general and Coursera in particular. We were pleasantly surprised to see how closely the reported experience of an administrator and professor matched exactly what Coursera describes. It’s common for different sides in any relationship to have different views of the experience, but the discussion we had was an exact match for Coursera’s claims.

We’d also like to express our appreciation to Stream Research Group. We partner with them on these calls, and their research department has done an incredible job getting us value-added calls with experts in a variety of fields. If you value this kind of information on other companies, feel free to reach out to them at the above link and consider subscribing.

We’ll be following the Online Education business (and other companies of interest) for a long time. For more timely access to information, and for additional guidance about these stocks, please reach out to us at IR@DeepKnowledgeInvesting.com to discuss subscribing.

[1] Bob Scott, the President Emeritus of Adelphi University wrote us a letter last week in which he also noted the high cost of student acquisition.
[2] This administrator’s language on this topic echoes Coursera’s comments as well. The company regularly talks about its success in moving “free” learners to degree programs.
[3] For more detail on that program, please see our original work on the subject.
[4] That deal is pending and not yet completed.
[5] We’re aware that others will have different opinions on this topic. Feel free to email us at
IR@DeepKnowledgeInvesting.com with your thoughts. This piece was prompted by questions posed by readers and we’re happy to engage.
[6] Again, this perfectly matches Coursera talking points.

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