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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Payback Time In For-Profit Education

Monday was a severe bloodletting for many players in the for-profit education sector. While the U.S. federal government had made no secret of its intentions to reform its approach to the industry, there were not a lot of details previously in play. Late on Friday, August 13, though, the government released data about loan repayment rates in the industry and the data was not pretty. 

The Government Wants Its Money Back
There has been an ongoing debate as to whether or not the surge in for-profit education over the last 20 years has benefited students and society nearly as much as the operators. Specifically, critics have pointed to programs that leave graduates ill-prepared to get better jobs and program costs that exceed the likely earnings benefit of the education. Said differently, these programs rely upon government-subsidized loans for a  large percentage of their revenue, but students are often unable to repay the loans. 


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