‘Substantial doubt’ over 2U’s future without rescue package

Leading US online course provider 2U has warned of deepening financial troubles, suggesting it could be headed towards bankruptcy just two years after its high-profile purchase of sector pioneer edX.

Without 2U getting some kind of financial rescue to reduce its debt levels, the company said in announcing its annual performance results, “there is substantial doubt about its ability to continue as a going concern”.

2U is a private company founded in 2008 that creates online courses for universities. It bought most of edX – a supplier of largely free online classes created by Harvard University and the Massachusetts Institute of Technology – in a bid to convert some of its users to fee-paying students.

But 2U made the $800 million (£640 million) purchase of edX around the same time its underlying model was suffering, as universities that had hired it to create online offerings were gaining confidence in building their own virtual classrooms. Major lost contracts included the University of Southern California, 2U’s original partner.

Government pressure also has increased, with federal lawmakers and the Biden administration considering demands from student advocates that they limit or end the right of private companies to participate in tuition-share agreements.

In its new financial report, 2U described both fourth-quarter and full-year revenue results well below investor expectations, and enrolment declines across most of its operations. The company’s stock is trading at about a fifth of its level of this past November. That, and the company’s blunt warning about its future, left industry analysts suggesting that 2U has few remaining options.

“A structured bankruptcy is likely in 2024” unless 2U somehow gets “enormous concessions” from its debt holders, said one sector analyst, Phil Hill.

Harvard and MIT used their payout from the edX sale to create a non-profit organisation they have now named the Axim Collaborative, which plans to finance projects that benefit low-income and non-traditional students. Axim also maintains a remnant of sale, called Open edX, that offers faculty worldwide an open-source online learning management system.

paul.basken@timeshighereducation.com