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Laureate Education S1 IPO

Laureate Education announced that they were looking for investment bankers to get the company ready for an IPO. The S1 for the company has not been filed as of April 12, 2012 but is expected shortly.

What does this IPO mean for the for profit education sector?

This IPO is important from a morale point of view for the for-profit edu sector which has been hammered since 2010 due to various federal regulations. Most of the companies in the sector lost 30-50% of the market value within a few weeks and have barely recovered. It is important to note that they have stabilized given that the political attention is now more focused on the election.

Here are some key points to know about Laureate Education:

1) Laureate has a very large international footprint extending well into South America.

2) Laureate’s top brand in the US is Walden University which is known to focus more on graduate level education. My guess is that Walden student’s overall life time value is slightly higher due to this strategy making it somewhat different than the rest of the industry.

3) Laureate has President Bill Clinton on its board. This is a major boost from a political standpoint and will probably protect them long term from any major litigation brought forth by the DOE. This is speculation on my part.

4) Laureate has grown through acquisitions and opened up new markets in Western Europe, Asia and Latin America. The biggest focus is n Latin America though.

5) From a purely revenue standpoint it is hard to say if Laureate is more profitable or less profitable than the industry average given that their revenue model outside of the USA is not dependent on federal financial aid. Once the S1 comes out this will be more clear.

6) The focus program wise on the international level goes after Education, Health Sciences, Art, and Hospitality. Essentially all of these sectors allow people to leave their country and are considered high demand fields. I can see why a lot of students would want to get an international education in a developing country and pay a premium for it.

7) A major benefit from these schools is the ability to do the student exchange and potentially visit or study in other countries.

8) They have over 675k students worldwide!

9) Other major for-profit schools in the US have been slow to move internationally.

10) They have a network of over 60 schools worldwide. Each one has a different brand though which may cause some issues long term with branding and quality control.

With their additional capital from the IPO, I think they will continue to grow through acquisitions and continue to flex their political muscle to build a truly worldwide brand.

From a larger perspective, their business model is under attack from systems like KhanAcademy, SkillShare, Udemy and numerous other universities entering the same markets. If you have ever visited South East Asia, you know that there are tons of schools appearing every day and still demand for these schools outstrips supply.

Being able to develop a legitimate brand in each country and then move into an online model will allow them to create a strong long term revenue model assuming people in each of those countries is able to pay for it.

Lastly one must consider political systems for funding. Going into a socialist or communist country where education is already paid for, people are going to question if a private high tuition school makes sense.

Looking forward to the Laureate S1!

Additional information can be found here on the Reuters website. 

 

Exponential Interactive IPO S1 filed

Exponential Interactive, an Emeryville, CA based ad network filed for an IPO on March 16, 2012.

The Exponential Interactive original S1 can be found here.

Here are some interesting details from the S1 filing:

  • Exponential’s CEO – Dilip DaSilva owns 74.90% of the shares currently. His family trust also owns an additional 5.11%.
  • They are looking to raise around $75 million dollars
  • The current stock price for accounting purposes is $2.75. This assumes a 6.5x multiple.
  • They are operating in 25 countries.
  • They have closed down their EDU lead generation division and are in the process of transitioning the clients to CPM buys on the core network. Their EDU product generated 5% of the 2011 revenue which equates to ~$8.45 million dollars. If they can not transition these clients to the CPM side of the business they expect to see a 5% decrease in revenue.
  • The Full Tango direct response is not mentioned much. In fact revenue is not really broken out by division.
  • The majority of international growth is coming from a physical presence in each country and increasing the number of sales people internationally.
  • The acquisition of AdoTube, a Ukranian video site will cost Exponential around $19 million dollars after all the earn outs are completed.
  • A major margin builder for the company has been acquisitions of content sites like TechBargains.com.
  • 2011 Gross Margin is 43.3% which is slightly above the industry standard of 40% for ad networks.
  • Gross Revenue Growth from 2010 to 2011 was 35.2%.
  • Stock symbol will be “EXPN”
  • International revenue grew 80% from 2010 to 2011. US revenue grew 20% in the same time period.
  • AdoTube generated around $10.3 mil in revenue in 2010 at a 54% gross margin.
  • $14.2 mil in cash on hand at the end of 2011.

Overall, Exponential is a solid company throwing off a healthy amount of cash each year.

There are some concerns to note in the S1 which could play into things over the coming months:

  • A change by large competitors like Google, Facebook and Yahoo! could alter the advertising landscape completely.  Is this anything new? No, but a company’s ability to navigate these changes and adapt to them will be key to their long term success.
  • The CEO is named as a risk because of his involvement with the core technology and his large percentage of ownership.  He has had a solid track record with running the company but how will the pressure of being a public company affect him? Will he be able to balance working with shareholders and working on the core tech platform? If not, will Alex the CTO be able to lead the tech platform into new areas?
  • There is no clear mobile strategy. Mobile ad inventory is increasing rapidly and taking away from desktop based inventory. Engagement rates are sometimes higher on mobile devices which could lead to greater top line revenue. However, Exponential does not mention a clear way to penetrate this market. This could severely limit growth potential long term.
  • Their international footprint is highly subject to currency fluctuations and global economic factors.
  • More than 80% of their revenue comes from recurring clients. Are they able to penetrate into new advertisers or has their inventory not that attractive? Or have the advertisers started to move more budget towards social platforms like Facebook?
  • From a competitive standpoint, it is hard to say if any of the ad networks have technology that is really differentiated. Even if they do, the lead that may develop from a differentiated technology is mitigated by the inventory they represent. The core of the network is really the relationships they maintain with their publishers. A significant risk is that these publishers are rarely loyal.

The above information is not intended to be financial advice in any way.