We are all deeply mired in the semi-permanent changes to life, work, and schooling from the global pandemic.
While “remote economy” software stocks continue to zoom higher, I’ve also been interested in how overpriced higher education would get disrupted by alternative online models.
In April, I had the privilege of attending some exclusive webinars with John Sculley, former CEO of Apple in the 1980s.
I wrote about his ideas in a July post for my TAZR Trader members…
Disruption Coming to a U Near You
I think we should be looking in unexpected new areas like Education, which is about to go through a radical revolution as the university model gets disrupted by the remote economy and players like Coursera, founded by former chief AI scientist at Baidu BIDU, Andrew Ng.
I am suddenly eager to find out how Coursera does their certification exams after an experience this week where a close friend (my wife) was seeking her food manager’s certification for some farmer’s markets fresh goods she makes and serves.
The firm, 360Training.com, offers regulatory-approved online courses and testing for food and beverage, real estate, and environmental, health and safety.
Over the course of 2 days, it took her nearly 10 sign-ins with multiple different proctors to take the exam. Each failed attempt took about an hour and usually ended in being disconnected from the dixie-cups-and-string program, or the proctor finding some issue with potential “cheating” such as another person in the room, notes nearby, or other open programs on the pc.
We had to literally cover multiple objects at the computer desk with cloth to prove she had no hidden notes or devices to aid her. The book shelves behind here were okay because she wasn’t allowed to look away from the camera — at any point — in the 80-minute exam.
In the first 5 disconnections, it was finally determined that our internet “upload” speed was insufficient. So I called our provider and found out my new modem could be instantly upgraded to 400 mbps for downloads and 20 mbps for uploads. Done deal.
Once, a proctor ended her session because she reached down to grab our German Biewer terrier who was at her feet.
Then, I got the dodo dog award another time for getting her “dumped” by the proctor because I walked in to grab a book when she was still getting set up. She hadn’t even started the exam yet.
I share this story because it illustrates the two big hurdles for universities this fall:
1) Delivering quality courses and secure exams online — and competing with Coursera and others at one-tenth the price.
2) The increased demands for high-speed connectivity and bandwidth — especially as more VR and AR get incorporated into Edu.
The first one may be more difficult than any of us imagined.
The second one is already a huge investable opportunity that we are trying to capture with companies like CIEN and INSG.
I’ll be sharing more on the opps in both areas this summer. Here’s what I wrote last month in an experimental blog post for Peter Diamandis…
Education: Following the Trails Blazed By FinTech and TeleHealth
COVID-19 launched telehealth into reality. Remote workers will force commercial real estate to reinvent. And it’s clear that the “bricks” just got trounced by the “clicks” again.
John Sculley believes that bloated universities have been slowly signing their own death warrants by building cumbersome programs as if they were government agencies and pricing themselves out of the market. Their judgement day has come.
April research from Barclays looked at the opportunities in educational technology in the wake of the pandemic. They observe that increasingly data-driven EdTech products are applying personalization, adaptive learning, gamification and immersion technology to forever change the way people learn.
The authors say, “Technologies such as virtual learning environments and online degrees could redefine formal higher education and transform the traditional career path.”
I think “could” is putting it lightly.
According to education research firm HolonIQ, total global expenditure is expected to reach $10 trillion by 2030, but of that, less than 3% is currently digital.
EdTech expenditure is estimated to grow more than 12% every year to $342 billion by 2025, but it’s still less than 5% of the overall pie.
As school, from 1st grade to graduate programs, got thrust onto the remote stage, teachers, students and some universities have adapted. But the field is still wide open for exciting new paradigms in education to be created, especially with VR and AR (augmented reality) tools.
More to come on this exciting new arena for disruption that is about to get heated next month as universities “leap or die” to life online.
(end of my July 14 note to Zacks Ultimate members)
Little did I know that just the day before, Alphabet GOOGL innovation lab Google revealed on Twitter its secret plans to disrupt college as Kent Walker @Kent_Walker, SVP of Global Affairs for @Google, tweeted some forthcoming surprises.
In the video that accompanies this article, I show those tweets and explain the bombshell that Google just dropped with 6-month IT certifications that they will treat as equal to a 4-year undergrad degree!
I also profile a handful of the companies who have already been competing and succeeding in this space like Pluralsight PS, 2U TWOU, and TAL Education Group TAL the Beijing-based company that offers after-school education for Chinese students in primary and secondary school.
Just this morning, a Jefferies analyst initiated TAL and New Oriental Education EDU with Buy ratings and these comments, courtesy of TheFly.com…
Analyst John Chou initiated coverage of New Oriental Education and TAL Education with Buy ratings and respective price targets of $175 and $90. The analyst sees the names as “long-term winners” post COVID-19, anticipating “paradigm shifts in education consumption” with greater online disruption and more competition.
Chou adds that TAL is his top pick in the K-12 After School Tutoring, or AST, with “Lean and Mean” attributes of “superior” online economics, strong pricing power, and its emerging B2B products. The analyst also sees New Oriental Education as the “Education giant” with strong positioning in K-12 AST along with its test preparation offering.
Also this week, Pluralsight was initiated with a Buy rating at DA Davidson, where analyst Hannah Rudoff assigned a $25 price target. She is positive on the company’s “strong value proposition” with over 7K technology courses and learning paths, along with the “secular tailwinds” of a growing skills gap for software engineers. Rudoff further sees Pluralsight as a “long-term beneficiary” of the pandemic, with more distributed workforces demanding “scalable, digital solutions.”
In the video, I look at the price performance of all these stocks since Google announce their new initiative.
The results may surprise you, including a bigger dip in Pluralsight than others, possibly due to the new cheaper, better, and faster competition in tech edu from Google.
When I put together my special report for Zacks Confidential last month, The Virtual Economy: Digital, Remote, Intelligent, I compared PS and 2U and ended up choosing the latter for my education stock pick because the price/sales valuation was much more appetizing at 3X vs 6X. So far, that has been the right move.
The Coming Housing and Economic Boom, Thanks to Millennials
In the video, I also share some great research from my colleague Tracey Ryniec about why the US economy will thrive in the next 2-10 years. It’s all about demographics and family formation.
And that’s why picking even just two of the right education companies now could pay off big time this decade.
Disclosure: I own TWOU shares.
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Baidu, Inc. (BIDU) : Free Stock Analysis Report
TAL Education Group (TAL) : Free Stock Analysis Report
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2U, Inc. (TWOU) : Free Stock Analysis Report
New Oriental Education Technology Group, Inc. (EDU) : Free Stock Analysis Report
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