Chip Paucek, co-founder and former CEO of 2U, appears at the company’s headquarters in Lanham, Maryland on Nov. 17, 2021. The company’s chief financial officer, Paul Lalljie, replaced Paucek as CEO in November 2023.
Marvin Joseph | The Washington Post | Getty Images
When 2U went public a decade ago, the company was out to prove it could make a splash in the notoriously difficult $550 billion U.S. higher education market.
For a while, it was on to something. The stock price ballooned from $13 at 2U’s 2014 IPO to a high of $98.58 four years later as demand increased for the company’s online education offerings. At its peak, 2U had a market cap of more than $5 billion and growth rates comparable to high-flying cloud software companies. Revenue climbed 44% in 2018.
Now, the company is hanging on for dear life.
2U’s stock price has been trading below $1 for much of 2024 following a problematic forecast in November and indications that some universities were terminating their contracts. This week, 2U issued weak guidance for the year and warned investors of “substantial doubt about its ability to continue as a going concern” without additional capital or reduced debt.
2U shares plummeted 59% after the announcement. They fell an additional 10% on Wednesday to close at 34 cents, valuing 2U at $27.5 million.
Analysts at Needham lowered their rating to hold from buy after this week’s report, and said the outlook made them more skeptical about 2U’s ability to refinance its debt, which stood at more than $900 million at the end of 2023. Cash and equivalents dwindled to $73.4 million from $182.6 million at the end of 2022.
In a statement to CNBC, a 2U spokesperson said the company won’t “speculate on potential outcomes.”
“2U expects to continue to engage constructively with our lenders and other financial stakeholders as we continue to evaluate options to strengthen our balance sheet and adapt our business to the present landscape,” the spokesperson said. “We have sufficient time and liquidity, and we believe we will reach a resolution that will benefit our stakeholders.”
The company started in 2008, initially under the name 2Tor, and built a business around the idea of helping universities pick up more students by holding classes online. For years, an outsized amount of 2U’s business came from a few colleges.
In 2017, 2U generated more than half its revenue from the University of Southern California (which ran the company’s oldest program), Simmons College in Boston and the University of North Carolina. 2U was eventually able to diversify and by 2021 no university client accounted for more than 10% of revenue.
The biggest problem, however, was that 2U’s model never proved profitable. 2U has lost money every year as a public company, with its total deficit over the past three years surpassing $830 million. A big chunk of 2U’s revenue has gone to pay for sales and marketing, and the company had “to expend substantial financial and other resources on technology and production efforts to support a growing number of offerings,” as stated in its 2021 annual report.
Bulking up
Rather than preserve capital, 2U went big on M&A.
In 2019 it paid more than $600 million to buy Trilogy Education, giving 2U more university partners. Then, in 2021, the company announced plans to buy online learning platform edX for about $800 million in cash. That acquisition would give 2U more than 230 education partners, including 19 of the top 20 universities across the globe, the companies said in a joint release when the deal closed.
The plan didn’t work. 2U took on debt for the edX acquisition, resulting in “interest payments that exceeded the revenue edX would generate,” analysts at Cantor Fitzgerald wrote in a report late last year.
By early 2022, sales growth had slipped into the mid single digits, and by the middle of that year, they were on the decline. Year-over-year revenue dropped for five straight quarters. Multiple rounds of layoffs ensued.
2U told investors in its earnings report in November that USC, its flagship customer, was paying $40 million to the company to end their relationship. 2U cut its forecast for the full year. The stock plummeted 57% in one day.
“We thank USC for the role they’ve had in helping us build our company,” then-CEO Chip Paucek said on the earnings call. However, he added that “with the results from the standpoint of new pipeline, the health of the existing portfolio is very strong.”
Days later, Paucek stepped down. He was succeeded by then-CFO Paul Lalljie.
Paucek, who didn’t respond to a request for comment, is now co-CEO of Pro Athlete Community, a company he helped start in 2022 to help educate professional athletes in business. His former company is now in crisis mode, with its share price in the tank.
Any stocks trading below $1 for 30 consecutive days can lead to a delisting from the Nasdaq. While 2U could potentially institute a reverse split to bolster its share price, that would amount to a temporary fix for a much bigger problem. Cantor Fitzgerald, KeyBanc and Piper Sandler have all discontinued coverage of the stock in recent months, signaling their lack of confidence in the company’s future.
Gautam Tambay, co-founder and CEO of online learning startup Springboard, told CNBC that it’s sad to see a pioneer in the space struggle.
“There’s a big part of me that would like to see them work through these challenges and get to the other side and be able to serve the mission that they started the company to serve, which is ultimately serve their students,” Tambay said.
Far removed from its growth days, 2U is just trying to survive.
On this week’s earnings call, Lalljie said the company is “embarking on a 12-quarter journey” to reset, which involves cutting expenses and working with lenders on its debt payments.
“We need to shrink to grow,” Lalljie said, “so that we can support the balance sheet that we have, so that we can be in a position to negotiate and extend the maturities — the upcoming maturities that we have and to ensure that we have a financially resilient company going forward.”
Altimeter Capital CEO Brad Gerstner said Thursday that he’s moving out of the “bomb shelter” with Nvidia and into a position of safety, expecting that the chipmaker is positioned to withstand President Donald Trump’s widespread tariffs.
“The growth and the demand for GPUs is off the charts,” he told CNBC’s “Fast Money Halftime Report,” referring to Nvidia’s graphics processing units that are powering the artificial intelligence boom. He said investors just need to listen to commentary from OpenAI, Google and Elon Musk.
President Trump announced an expansive and aggressive “reciprocal tariff” policy in a ceremony at the White House on Wednesday. The plan established a 10% baseline tariff, though many countries like China, Vietnam and Taiwan are subject to steeper rates. The announcement sent stocks tumbling on Thursday, with the tech-heavy Nasdaq down more than 5%, headed for its worst day since 2022.
The big reason Nvidia may be better positioned to withstand Trump’s tariff hikes is because semiconductors are on the list of exceptions, which Gerstner called a “wise exception” due to the importance of AI.
Nvidia’s business has exploded since the release of OpenAI’s ChatGPT in 2022, and annual revenue has more than doubled in each of the past two fiscal years. After a massive rally, Nvidia’s stock price has dropped by more than 20% this year and was down almost 7% on Thursday.
Gerstner is concerned about the potential of a recession due to the tariffs, but is relatively bullish on Nvidia, and said the “negative impact from tariffs will be much less than in other areas.”
He said it’s key for the U.S. to stay competitive in AI. And while the company’s chips are designed domestically, they’re manufactured in Taiwan “because they can’t be fabricated in the U.S.” Higher tariffs would punish companies like Meta and Microsoft, he said.
“We’re in a global race in AI,” Gerstner said. “We can’t hamper our ability to win that race.”
YouTube on Thursday announced new video creation tools for Shorts, its short-form video feed that competes against TikTok.
The features come at a time when TikTok, which is owned by Chinese company ByteDance, is at risk of an effective ban in the U.S. if it’s not sold to an American owner by April 5.
Among the new tools is an updated video editor that allows creators to make precise adjustments and edits, a feature that automatically syncs video cuts to the beat of a song and AI stickers.
The creator tools will become available later this spring, said YouTube, which is owned by Google.
Along with the new features, YouTube last week said it was changing the way view counts are tabulated on Shorts. Under the new guidelines, Shorts views will count the number of times the video is played or replayed with no minimum watch time requirement.
Previously, views were only counted if a video was played for a certain number of seconds. This new tabulation method is similar to how views are counted on TikTok and Meta’s Reels, and will likely inflate view counts.
“We got this feedback from creators that this is what they wanted. It’s a way for them to better understand when their Shorts have been seen,” YouTube Chief Product Officer Johanna Voolich said in a YouTube video. “It’s useful for creators who post across multiple platforms.”
CEO of Meta and Facebook Mark Zuckerberg, Lauren Sanchez, Amazon founder Jeff Bezos, Google CEO Sundar Pichai, and Tesla and SpaceX CEO Elon Musk attend the inauguration ceremony before Donald Trump is sworn in as the 47th U.S. president in the U.S. Capitol Rotunda in Washington, Jan. 20, 2025.
Saul Loeb | Via Reuters
Technology stocks plummeted Thursday after President Donald Trump’s new tariff policies sparked widespread market panic.
Apple led the declines among the so-called “Magnificent Seven” group, dropping nearly 9%. The iPhone maker makes its devices in China and other Asian countries. The stock is on pace for its steepest drop since 2020.
Other megacaps also felt the pressure. Meta Platforms and Amazon fell more than 7% each, while Nvidia and Tesla slumped more than 5%. Nvidia builds its new chips in Taiwan and relies on Mexico for assembling its artificial intelligence systems. Microsoft and Alphabet both fell about 2%.
The drop in technology stocks came amid a broader market selloff spurred by fears of a global trade war after Trump unveiled a blanket 10% tariff on all imported goods and a range of higher duties targeting specific countries after the bell Wednesday. He said the new tariffs would be a “declaration of economic independence” for the U.S.
Companies and countries worldwide have already begun responding to the wide-sweeping policy, which included a 34% tariff on China stacked on a previous 20% tax, a 46% duty on Vietnam and a 20% levy on imports from the European Union.
China’s Ministry of Commerce urged the U.S. to “immediately cancel” the unilateral tariff measures and said it would take “resolute counter-measures.”
The tariffs come on the heels of a rough quarter for the tech-heavy Nasdaq and the worst period for the index since 2022. Stocks across the board have come under pressure over concerns of a weakening U.S. economy. The Nasdaq Composite dropped nearly 5% on Thursday, bringing its year-to-date loss to 13%.
Trump applauded some megacap technology companies for investing money into the U.S. during his speech, calling attention to Apple’s plan to spend $500 billion over the next four years.