We think demand for private online post-secondary education will be strong in a long run attributable to demographic changes (increasing working students). In a short term, the current unfavourable economy and job market, which made less working students to consider going back to school, and the more strict regulation caused intensive competition.

Sector’s current, trend, causes behind trend, and future

Current and Trend

• Demand for online post-secondary education service is supposed to be strong and growing in long run.
• Demand for post-secondary education continued to decline in short term. Decreasing demand/enrollments and the resulted increase in competition among schools caused general decrease in margins of companies in short term due to increased costs in promotion, advertising and scholarship incentives.
• In the intensive competition, those companies that have to raise tuition and close programs to improve cash flow lost enrollments.
• Facing increasing competition for enrollment among private universities, they have to either increase spending in marketing or cut programs that are not profitable.

Causes behind the trend

• Demographic factor and trend – increase in adult and working students support an increasing demand for online post-secondary courses.
• Current economic situation and unbalanced employment market causes less non-traditional students- adult learners to go back to school.
• Changes in regulation of government also contributed to the increase in competition for enrollment.

Industry Future

There is a reason to believe that demand for online post-secondary education from working students will continue to exist. However, how fast this demand will grow or whether the current unfavourable industry environment can make a turn may depend on economy situation.

General Financial Performance of Companies In the Sector

It seems that demand for higher private education –degree grand is still solid in the past several years but varied depending on programs. However, generally universities in this sector have experienced increasingly competition in admission. At the same time, price/economy elasticity is apparent. Due to the whole unfavourable environment for university education, many universities have to reduce tuition to stimulate enrollment and it seems it has worked for certain programs of those universities.

The direct consequence of intensive competition for some universities in this sector is the increased spending in marketing and admission. The continuingly shrinking profit resulted from competition also forced some of universities to cut programs that are not profitable. As a result of impacts described above, some of companies’ gross margin (include depreciation and amortization, rent, and marketing expenses) went down but others went up. Our data indicate those companies’ gross margins are between 17-23% with G&A as percentage of sale of 7-11%. 

The typical operating margins among those companies are between 10-11%.

According to our analysis, the current companies’ enterprise price/EBI ratio is between 21 and46 with an interest/EBITDA ratio of 0-40%.

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