Investopedia: Archipelago Learning In Detentino, But Still On Course To Graduate

Offering money-saving solutions for K-12 education is usually a pretty good business plan, but perhaps not so much in those times where state budgets and standards are in flux. While Archipelago Learning (Nasdaq:ARCL) offers attractive cloud-based supplemental education products, the company is seeing business slow a bit, due to those macro factors. While this company certainly carries above-average risk, it also offers above-average potential for risk-tolerant growth investors.

Still Growing, But...  
The recent issue with Archipelago isn't that it's no longer growing, but that its growth rate has declined recently. While the company was posting 30%+ year-on-year growth rates early in 2011, that growth has declined to the point where sell-side analysts expect only single-digit growth for the fourth quarter (to be reported in March).

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Archipelago Learning - Not All For-Profit Education Is The Same

These are grim days for the for-profit education sector. The government has painted a bullseye on the hind ends of companies like Apollo Group (Nasdaq: APOL), DeVry (NYSE: DV) and Career Education (Nasdaq: CECO), ostensibly for poor student loan repayment rates and generally over-promising the benefits of post-secondary education (though many public/private universities have similar problems...).

Investors may want to broaden their horizons and take a look at Archipelago Learning (Nasdaq: ARCL). Although sometimes grouped in with those for-profit educators, Archipelago's business model is completely different, and comparing this company to that industry just makes no sense. Archipelago is in the business of selling online subscription-based educational content to K-12 schools, helping those schools educate their students better and achieve higher test scores.  

A Quarter Worth Studying
For the third quarter, Archipelago reported a 46% jump in revenue to just over $15 million, so this is very clearly still a very small company. Scrubbing out the boost provided by the mid-summer acquisition of Education City, growth was more on the order of 27%. Going a step further, the company also reports invoiced sales; this is not at all uncommon with subscription-based models where there is a time gap between recognizing a "sale" and getting the money. By this metric, sales were up 37% for the quarter and 19% ex-Education City. (For more, see Pay Back Time In For-Profit Education.) 

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