Lanham’s 2U Inc. (NASDAQ: TWOU) will start 2022 quite differently than expected. Because of the most recent Omicron-induced wave of Covid-19, its offices' voluntary re-openings — scheduled for January — were canceled. In addition, the company recently shifted policy to allow employees to work away from those offices permanently.
Fresh off the $800 million acquisition of online education company edX's assets, 2U CEO and co-founder Chip Paucek spoke about the changes to remote work and other milestones from 2021, as well as the state of the business, in a wide-ranging interview with the Washington Business Journal.
The balancing act of remote vs. hybrid work
On the permanent remote work option, Paucek said it was a tough call because "we’re a big believer in allowing people to come together to experience the culture of the company." 2U's headquarters in Lanham above the New Carrollton Metro station has been closed since the start of the pandemic. Once offices do eventually reopen, Covid-19 vaccinations will be mandatory, Paucek said.
"It’s hard in this world, but we feel that it was necessary to offer a permanent remote ability," the CEO said. And while employees can now be permanently remote if they choose, hybrid is also an option.
As for what the new policy means for the company's real estate footprint in the region, Paucek said 2U is “committed long-term to having physical spaces.” 2U moved into its headquarters, which now spans 309,303 square feet, at 7900 Harkins Road in 2017.
Around 1,000 of 2U's 3,900 global employees are based in the Washington region; its second-largest office is in Cape Town, South Africa where nearly 900 employees are based.
With edX on board, 2U looks to grow
Workforce considerations weren't the only big changes for 2U this year. In addition to the acquisition, 2021 saw the company's stock price take a tumble, starting the year at $39.10 per share and now sitting at $21.55.
But Paucek said he is confident the company will hold up in an increasingly competitive ed-tech marketplace. Much of that confidence seems to stem from bringing edX's assets into 2U's fold. 2U is acting as the parent company, and edX will become the face of its products and services. The latter was founded by professors at Harvard University and MIT in 2012, and while it’s much younger than 14-year-old 2U, it has a global recognition that Paucek believes will be beneficial.
“Our historical roots are powering online degree master’s programs,” Paucek said, and some people think the company still only does that. It’s still a significant portion of its work; earlier this year it partnered with Howard University to create an online master’s degree in social work.
With edX, it’s now expanding with projects like a recently announced $1 million commitment to create 10 free courses on skills for the virtual age. Many of 2U's current partners, including Howard, agreed to give some type of free courses on edX following the acquisition, a move Paucek said will increase affordability.
"I think with edX under our wing now, it does supercharge the 2U story,” Paucek said.
The company is also looking forward to edX's impact on its bottom line. Before the deal even closed, 2U executives predicted that edX will contribute between $40 million and $60 million annually to its sales and marketing revenue by 2023, 2U CFO Paul Lalljie told investors on the company's third-quarter earnings call. The firm also increased its revenue guidance for 2021 to reflect growth of between 21% and 23%, up from 19% to 23%, due in part to the projected closure of the edX deal, Lalljie said in the third-quarter earnings release.
2U's financial picture improved in other ways this year. Revenue for the first three quarters of 2021 totaled $702 million, a 25% increase from the same period last year. Meanwhile its losses during the first nine months of this year were $127.5 million, down from $178.8 million during that period in 2020. For the full year, the company predicts between $935 million and $955 million in revenue, a 22% increase from 2020. It expects its losses to shrink, to between $190 million and $200 million, down from $216.5 million for 2020.
Pandemic brings big opportunity, competition in ed-tech
In the long term, Paucek sees “huge opportunity” in the educational technology space. “A very small percentage of the world’s education is digitized,” he said. “We’re in the early innings of this.”
That opportunity also brings no shortage of new competitors. Full Measure Education, a D.C. ed-tech startup from Blackboard veteran Greg Davies, recently raised $10 million to build out its online platform to help students navigate some of the college experience from their phones. Aneta Ed is another startup, based in Cheverly, that's helping families and schools with online K-12 education, while Blackboard co-founder Michael Chasen has raised big sums for his latest ed-tech venture, Class Technologies Inc., a Zoom-like platform for online learning.
Paucek said he’s heartened to see the industry growing. It’s been a crucial nearly two years for ed-tech companies — a broad umbrella that includes ventures offering a wide variety of programs and services — as the pandemic has moved many activities online. It’s a shift that will likely be permanent in many ways, offering more opportunity for these firms to meet the challenge.
“I welcome the competition," Paucek said. "I think it’s good for the space.”
