Product and Service
Companies included in private university – higher education sector in education industry are primarily degree-granting higher education institutions.
Demand for Product and Service
We think demand for private higher education may go stronger in a long run attributable to demographic changes and unbalanced supply for quality higher education of public education institutes. In a short term, private higher education has experienced impacts from unfavourable market and it seems that this impact has caused intensive competition in reduction of tuition and disposition of schools.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Decreasing demand for post-secondary education in the past several years may be continuing. As influenced by many common factors, private universities have experienced much bigger impacts.
- Demand for post-secondary education is still solid and supposed to grow in long run. As general demand gets stronger, the demand for private university education may go even faster in a long run.
- Increasing competition for enrollment among private universities varies among different programs and, as a result, universities have to either increase spending in marketing, lower tuition, or cut programs that are not profitable.
Causes behind the trend
- Demographic factor and trend in employment market support a positive forecast for demand for post-secondary education in long run. However, favourable job market also has a negative influence on some of programs.
- Unbalanced supply for quality higher education of public education institutes has been the major driver for private higher education to grow in a favourable situation.
- Current economic situation and unbalanced employment market and demand for industry have formed the major obstacle for struggling performance in enrollment of universities, especially in enrollment of private universities with higher costs.
Industry Future
There is a reason to believe that demand for private higher education will continue to be strong generally but the extent to which it is strong will vary depending on programs and industry demand.
Numbers
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%.
