2U Inc Down 8% On New Capital Raise; Pulls Financial Guidance

Specifically, TWOU intends to sell $300 million aggregate principal amount of convertible senior notes due 2025 in a private offering to qualified institutional buyers. It also intends to grant these purchasers a 13-day option to buy a further $45 million aggregate principal amount of notes.

“The capital-raise announcement could act as an overhang for the stock as it dilutes shareholders, it likely means 2U’s business-model transition will take place in the public markets, and optionality from a potential private equity takeout is likely off the table” warned Oppenheimer analyst Brian Schwartz following the announcement. Indeed, shares fell 8% on Monday, taking TWOU’s year-to-date loss to 8%.

Meanwhile the company withdrew its financial guidance for 2020, citing Covid-19 uncertainty. “Beyond the operational complexities associated with launching and supporting quality online offerings, universities are experiencing budget and cash flow shortfalls related to COVID-19,” CEO Christopher Paucek commented.

However, he added that “Long-term, we believe the unprecedented impact of COVID-19 has significantly accelerated the existing secular trends driving adoption of online higher education.”

At the same time, TWOU announced positive preliminary financial results for its fiscal quarter ended March 31, 2020. 2U now expects strong 1Q total revenue of $175.5M (+44% year-over-year), $1.1M above the consensus estimate. Meanwhile adjusted EBITDA is estimated at ($4.3M) which is $7.4M above the ($11.7M) consensus estimate, while 1Q GAAP net income of ($60.1M) comes in $2.2M above the ($62.3M) Street forecast.

Right now analysts are cautiously optimistic about TWOU’s outlook. The stock shows a Moderate Buy consensus on TipRanks with a $28 average analyst price target (27% upside potential). (See 2U Inc stock analysis on TipRanks).

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