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Apollo Group Inc (APOL), DeVry Inc. (DV): Wow…Is For-Profit Education Actually Dead?

For most of the past decade, private for-profit educational institutions were the fastest growing—and arguably the most visible—part of U.S. higher education.  In 2001, 766,000 students were enrolled in for-profit schools, compared to 2.4 million in 2010, and the years between 1998 and 2008 saw enrollment growth of 255%, compared to 31% growth overall for enrollment across all schools granting post-secondary degrees.  On the whole, for-profits contributed 0.2% to aggregate enrollment in 1970, and that number has risen to just over 9% in recent years.

After a decade of skyrocketing growth, companies in the for-profit post-secondary education industry are now in many respects but shadows of their former selves. According to recent government data for 2012, while enrollments fell in every sector except four-year private non-profits, four-year for-profits suffered the largest decline, at 7.2%. Volatile enrollment, combined with stringent regulatory requirements and political pressures, continue to present headwinds for this space.

There are plenty of investment opportunities here—read about some more here—but we’re going to take a look at a few that are worth watching over the others.

Apollo Group Inc (NASDAQ:APOL)

Apollo Group Inc (NASDAQ:APOL) reported earnings this past week for the three and six-month periods ending in February, beating analysts’ estimates despite falling enrollments. Net revenue for Q2 2013 was $834.4 million, down from $962.7 million in Q2 2012.  Degreed enrollment for the University of Phoenix, which generated 90% of Apollo Group Inc (NASDAQ:APOL)’s revenue, was 300,800, down 15.5% from the year-ago quarter, and New Degreed Enrollment was down 20.1% from second quarter of 2012.

Net revenue for the first fiscal half of 2013 was $1.9 billion, down 11.5% compared to the first fiscal half of 2012.  For the first half of 2013, University of Phoenix’s average degreed enrollment decreased 14.5% compared to the same year-ago period.  The company expects net revenue of $3.65 billion to $3.75 billion for fiscal 2013.  The University of Phoenix—one of the company’s strongest brands—received indication that the Higher Learning Commission, which accredits Apollo Group Inc (NASDAQ:APOL), recommended the school be placed on probation for “alleged administrative and governance deficiencies.” Still, some analysts think the company is “smart”; see the details here.

Bridgepoint Education Inc (NYSE:BPI), a couple weeks ago, reported its fiscal results the fourth quarter and year ending at the conclusion of 2012. In last year’s fourth quarter, revenue decreased to $209.4 million from $221.3 million for the year-ago quarter, while net income decreased to $16.0 million compared to $22.9 million for the year-ago period. On the year, revenue increased from $933.3 million to $968.2 million, while net income was $128.0 million compared to $172.8 million for 2011.  Total enrollment decreased from 86,642 at December 31, 2011 to 81,810.

Capella Education Company (NASDAQ:CPLA) finished its Q4 on December 31st as well, with revenues down 2.7% for the quarter, $107 million compared to $110 million in the year ago quarter, while total enrollment decreased 3.6% to 36,329.  For the year 2012, revenues decreased by 1.9% to $421.9 million, while net income was $36.5 million, compared to $52.1 million in 2011.

Grand Canyon Education Inc (NASDAQ:LOPE), for the three months ended December 31, 2012, reported on February 19th. Net revenue was up 25.0% to $141.3 million for Q4 2012, compared to $113.0 million for the year-ago quarter; enrollment was approximately 52,300, up 19.1% from approximately 43,900 at December 31, 2011.  For fiscal 2012, net revenue increased 19.8% to $511.3 million compared to $426.7 million in 2011, while net income increased 37.4% to $69.4 million for the year, compared to $50.5 million in 2011.

DeVry Inc. (NYSE:DV), lastly, posted its Q2 2013 results a month ago. In the fourth quarter, revenues were down 3.6% to $505 million, but the company reported that net income increased to $50 million from $9 million. For the six months ending December 31st, 2012, revenues decreased 5.3% to $988 million while reported net income increased to $82 million from $66 million. Though total enrollments were down 5.4% from one year earlier, some of DeVry Inc. (NYSE:DV)’s portfolio institutions, such as Chamberlain College of Nursing and Carrington Colleges, posted positive new enrollment growth.  The company estimates that aggressive cost control measures will save about $80 million in fiscal 2013 alone. Interestingly, hedge funds have been selling DeVry of late.

So while some, such as Grand Canyon and DeVry Inc. (NYSE:DV), look more attractive than others, one would be remiss to sound death bells for the industry. Higher education in the public sector generally has been suffering its own woes of late, plagued by decreasing enrollments, increasing tuition, diminishing federal and state funding and increasing no-longer-concealable capital costs.  Furthermore, the advent of new platforms and technologies such as MOOCs (Massive Online Open Coursewares) and continual chiseling against accreditation—hitherto the sacred cow of the public sector—could put market share up for grabs.  Proprietary schools have—and will likely be—around for a long time.

Disclosure: none

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