Shares of ed-tech company 2U plummet 57%, fall below $1 for much of day

The stock price of online education company 2U fell below $1 per share throughout the majority of Friday.

The company announced a larger-than-expected loss for the third-quarter and reduced its revenue guidance for the entire year.

The CEO of the company, Christopher Paucek, said that the results were not up to expectations at the start of the earnings call on Thursday.

Shares in online education company

2U

Closed down 57% on Friday. The stock fell below $1 throughout the day, after a poor forecast and signs that some universities were terminating contracts.

2U, a company that helps companies provide digital programs to their students, reported a loss of $47.3 million in the third quarter. According to LSEG (formerly Refinitiv), its adjusted loss per share of 15 cents was higher than the analysts' expected loss of 13 cents. 2U expects to have revenue between $965 and $990 for the entire year. This is down from their previous guidance of $985-990.

Christopher Paucek, CEO of iSchools, said in the opening of the analyst's call on Thursday that "these results did not meet expectations due to weaker demand for our coding bootcamps and continued enrollment softness" in some of iSchools' higher-priced degrees programs. We also need to improve our balance sheet, and we are doing so diligently.

It is important to note that the forecast includes the revenue paid by the company for terminating the use of their programs. 2U, for example, said that the University of Southern California pays $40 million to terminate the relationship.

Paucek stated on the phone that "we thank USC" for their role in helping build our company. "But in the end, we decided to terminate programs that no longer fit with our platform strategy."

Analysts at Cantor Fitzgerald downgraded their rating of the stock from "overweight" to "neutral", and described 2U’s actions as "fire sales to stay afloat."

Analysts wrote that the company's earnings showed it is heavily dependent on one-time university payments and that "core degree business" was deteriorating. The company laid off 12% its staff in the third quarter, and it has an alarming debt load of almost $880 millions.

Cantor analyst wrote that 2U's path towards profitability was built around the idea of more degrees on platform leading to "meaningful profit".

2U didn't immediately respond to CNBC’s request for a comment.

Nasdaq listed 2U shares in 2014. In May 2018, the stock reached a high of over $98 per share, giving 2U a market capitalization above $5 billion. Its valuation was $77 million as of Friday.

The Nasdaq may delist a stock if it trades under $1 for 30 days in a row. Reverse stock splits are used by some companies to increase the price of their shares above $1. However, this does not solve any financial issues.

Bird is a scooter company.

Delisted

The New York Stock Exchange imposed a penalty in September for failing to maintain its market capitalization above $15 million over 30 consecutive days. This was after a reverse split of 1-for-25 to raise the stock above $1. WeWork is an office-sharing company.

Filing for bankruptcy

This week, the company declared a 1-for-40 reversal split in August to retain its NYSE listing.

The 2U share price fell 57% on Friday to $1.03 cents at the market close.

WATCH:

Paradigm shifting moment for higher ed

Do not miss out on these stories from CNBC Pro: