Q1 Business Pulse: Partnerships, Earnings and More

April Business Pulse: Partnerships, Earnings and More

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Updated on June 11th, 2019.

LMS companies, vendors and related service providers are starting to exert some caution, which should guide their action throughout the rest of the year. The U.S. is still a promising landscape for innovation and growth, as long as you keep your expectations in check. Across the emerging world, Latin America, Asia and Africa, the potential is correlated to the entry barriers, a function of cultural aspects and the ability to foster sustainable partnerships. Global issues, including inequality on the digital access and economic fronts, and even trade disputes and climate change loom in the background, slowly coming into the field of vision.

Let’s take a wide look at the EdTech landscape from a business opportunity perspective. Buckle up!

Markets Pulse

As companies publicly listed provide transcripts of their earnings call for Q1, we can get some ideas about the sentiment surrounding the EdTech space, which may or may not be representative of the global dynamics. The U.S. is, however, the largest market, and it can capture international trends given the many foreign companies listed on the New York exchanges.

TAL Education Group: Cautiously optimistic

The largest company in the Education category listed on the New York Stock exchange, China‘s TAL offers a series of services, the main one being Xueersi Peiyou online tutoring. (Note that some key companies in the space are categorized as technology or software specifically.) For a couple of years now, the Chinese tutoring market has been expanding, and many EdTech companies are riding along. As we will see as a recurrent theme among the optimistic and successful, increased marketing efforts are behind, with their budgets growing as a percentage of total spending. As TAL establishes dominance, it’s quickly expanding its online brand and platform into “offline” solutions, including their own physical classrooms.

2U: Downturn in 3…

The largest Online Program Manager, 2U, lowered its yearly growth forecast from 30% to mid-20s in its main business of supporting online graduate programs. It depends on enrollments, which university partners are tightening. According to its CEO, 2U has no control over the lower admission rates and program delays. As the field matures, older partners scale back and the new ones are not as big, threatening growth. This helps explain the acquisition of bootcamp company Trilogy, an “Alternative Credential” business. The company’s stock took a 25% dive shortly after the call. Revenues from grad degrees are stagnant compared to the same quarter one and two years ago, and the new alternative credential business did not improve this quarter, stuck in $18.2 million. The company is yet to make a profit.

2U, formerly 2tor, used to lean on Moodle for their platform, which dropped in favor of an in-house LMS shortly after going public. It’s been the subject of controversies for its role in the online for-profit education market.

Instructure (Canvas LMS): Outsmarting the rest, or a lucky break?

A company whose acquisitions seem to be more readily visible on financial statements is Instructure. MasteryConnect is expected to get Canvas more involved “in the flow of teaching” at “modest” increase of operating expenses for the quarter, according to its CEO. Instructure defied forecasts while increasing its negative operating margin and operating loss $0.04 less than expected. Cash is depleting quickly and debt rising for one of the few companies who saw a stock rise in the past months.

Large part of Instructure’s liabilities could be seen as necessary investments for the future: A new Budapest office could lead to lower employee overhead, perhaps layoffs in the U.S. New deals with companies including Starbucks and Uber, and key switches from Moodle and Blackboard in the U.K., Latin America and Singapore, should have warranted an increase of marketing and other acquisition efforts.

Interested in the outlook from other education and technology companies? Let us know.

Partnership capital

Partners are providers of LMS-related services, from hosting to content to consulting, authorized to use trademarks, and often working closely with development teams. In exchange, they contribute a portion of the revenues with the company. Moodle has what is likely the most active Partner Program for an LMS. Totara and Sakai also maintain their own partnership programs, and even some Moodle Partners run their own partnerships for third-party solutions.

Moodle Partners

Blackboard sells Transact

The EdTech giant’s incursion in payments is over. Baltimore-based Blackboard has agreed to sale the Transact business line and Cashnet to a private equity firm, a business acquired less than 3 years earlier.

(August, 2016)

This would easy concerns over debt and liquidity. A press release argues the move will allow the unit to operate independently, and all but guarantees the support for Blackboard systems will remain in place.

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