2016 Annual Report

Our Strategy

There are over seven billion people in the world. For each person, education remains one of the most powerful global drivers of change and upward mobility. And each person pursues education for his or her own reason, goal or dream. It’s these individual aspirations that make higher education one of the largest markets in the world.

The global economy is evolving, and the needs of students are evolving with it. A highly educated workforce is critical to ensure that we are meeting the needs of a changing world. Students with diverse life circumstances require education that is affordable, flexible, and supportive enough to meet their needs and achieve a high return on investment.

Universities must adapt as well, to align with both workforce and student needs. Higher education is in the midst of the digital revolution. Embracing technology is no longer optional. 2U is helping universities create new ways to serve students and meet the needs of an ever-changing world. With the flexibility and speed of digital education, universities are able to explore fields of study that may have otherwise been unreachable. And they are able to broaden their brands to an international audience.

At 2U, this is our vision. We believe the institutions that embrace this transformation and reimagine themselves as great digital universities will thrive in this new era, fulfill their missions in ways never before thought possible, and emerge as the leaders of the 21st century.

Higher Education in Perspective

Higher education is a $1.9 trillion industry. For comparison, this is how the higher education market compares with other large global markets.

chart showing higher education compared to transportation, healthcare, information technology, and transportation

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Our Growth Strategy

2U is a leader in delivering the highest quality digital education at scale. Our approach to growth is disciplined and focused on long-term success. Today, we partner with great U.S. colleges and universities to launch and scale graduate degree programs, which we call our Domestic Graduate Program (DGP) business. In the future, we believe there is opportunity for growth and expansion into other areas of global higher education, including non-degree education, international graduate education and domestic undergraduate education.

2U in Perspective

Global higher education is in the early stages of a digital transformation. Today, 2U is a fraction of this market. But if we continue to execute on our growth strategy of launching and scaling DGPs, we believe that our domestic graduate business could grow to more than $3B in annual steady state revenue at maturity. And to achieve this target, 2U partner programs only need to capture roughly 5.6% of the total addressable market for U.S. graduate education1.

The DGP market alone provides the runway to become a very large company, and U.S. graduate education is less than 1% of the $1.9T spent on global higher education. 2U has plenty of opportunity for growth and expansion, including in areas such as non-degree education, international graduate education and domestic undergraduate education.

chart displaying 2U's share of the market compared to the potential market

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Our Domestic Graduate Program Strategy

2U remains focused on our current core business - launching and scaling DGPs in new and existing verticals. We believe that this opportunity, alone, can drive 30 percent revenue growth for the foreseeable future.

U.S. graduate education is an $80B industry with more than 1,000 verticals. It is not our strategy to power every degree at every college and university. Instead, we are focused on partnering with leading non-profit colleges and universities to deliver specific degrees at scale. Because scale requires a significant investment in each DGP we launch, 2U has developed a proprietary Program Selection Algorithm to identify new DGPs with the greatest opportunity for success based on combinations of university, degree vertical and geographic region.

Out of the over 1,000 graduate degree verticals, 2U plans to launch at least one DGP in 60-90 distinct verticals. In each vertical, 2U will then launch some number of additional DGPs based on the annual degree conferrals in the vertical and the regional career opportunities for those graduates. Once launched, we believe that our data-driven marketing team can scale each of those DGPs to an average of $16 million in annual steady state revenue. If we execute this strategy, we believe we could launch approximately 200 DGPs. At maturity, these should generate more than $3B in annual steady state revenue.

Our strategy for expansion and growth within the DGP segment include:

New Verticals

Multiple Program Verticals

Scale Programs

Programs in New Verticals

There are over 1,000 verticals in U.S. graduate education. We determine potential verticals using our Program Selection Algorithm, which is based on variables including the existing market size of a degree, potential student demographics, and regional career prospects for graduates.

When we consider new verticals, we look at new and expanding fields like data science, programs that require licensure like speech therapy or psychology, and sectors with significant and growing market demand like social work or nursing. We also consider large perennial markets with steady student demand like law or business.

2U plans on launching DGPs in 60-90 of these verticals.

Today, 2U has announced or is operating DGPs in 24 verticals:

Current Verticals

Behavior Analysis

Business

Communications

Data Science

Design

Education

Engineering

Health Administration

Health Informatics

Information Science

International Relations

Juris Doctorate

Legal Studies

Mental Health Counseling

Nursing

Occupational Therapy

Physical Therapy

Physician Assistant

Psychology

Public Administration

Public Health

School Counseling

Social Work

Speech Pathology

 

Programs in Existing Verticals

Once a DGP is launched in a vertical, 2U plans to partner with additional colleges and universities to offer more DGPs in that same vertical. We believe this approach, which we refer to as our Multiple Program Vertical (MPV) strategy, will enable us to leverage our program marketing investments across DGPs within a specific academic discipline, which expands the number of students we can find while decreasing the cost per acquisition.

In 2013, the nursing vertical became the first with multiple DGPs. At the end of 2016, we were operating multiple DGPs in five verticals. Over the next year that number will more than double. Today, if we launched all of our announced DGPs, MPV would expand to 12 verticals.

Each listed year corresponds to a launch within a specific vertical. Some DGPs have offerings launched within several MPVs.

MPV Launch Timeline

Nursing
2011
2013
2016

Social Work
2010
2014
2018

Business
2011
2015
2015
2016
2017
2018

Data Science
2014
2015
2017

Communications
2015
2016

Public Health
2013
2017

Public Administration
2013
2017

Education
2009
2017

School Counseling
2016
2017
2018

Legal Studies
2013
2017

Mental Health Counseling
2015
2017

Engineering
2016
2018

Scale of Existing Programs

Once a DGP is launched, we commit to scaling enrollments for our partner while maintaining the highest quality and academic integrity. Our data-driven marketing team and our MPV strategy enable 2U to drive enrollments for a single DGP above, and in many cases well above, the enrollment level a university would be able to achieve operating alone.

Leveraging our shared marketing funnel of prospective students across DGPs in the same or similar verticals, we believe we can acquire multiple students for the cost we would have previously paid for one. This increased efficiency allows us to reinvest in that vertical, opening new marketing channels and driving additional enrollments for all DGPs in that vertical.

We also use data analytics and machine learning to ensure that our marketing efforts are focused on finding prospective students for the right programs at times when conversion is likely.

At scale, 2U targets 300-500 new student enrollments per year for a typical DGP. Taking into account other attributes including tuition level, retention rate, and revenue share, we believe DGPs that meet the target enrollment level would generate an average of $16 million in steady state annual revenue for 2U.

Target Attributes of a Typical DGP

Tuition Level

Annual New Student Enrollments

Revenue Share

Retention

Steady State Revenue

$70-75k

300-500 enrollments per year

Low to mid 60 percent

83%-84%

$16 Million

 

Target Attributes of a Typical DGP

Tuition Level
$70-75k

Annual New Student Enrollments
300-500 enrollments per year

Revenue Share
Low to mid 60 percent

Retention
83%-84%

Steady State Revenue
$16 Million

 

Opportunities for Expansion

We intend to continue to deliver high-quality outcomes for students, while maintaining our industry leadership as a provider of bundled solutions that allow universities to expand and operate programs at scale. We also have opportunities to expand into additional markets including:

Non-degree

As the workforce changes, particularly with the advent of entirely new fields within technology and business, the educational needs of students change, as well. More and more, students are seeking professional certifications and other non-degree alternatives. This is the case with many prospective students within the current 2U marketing funnel, which presents a new opportunity for the company.

International

We believe that there is significant international demand for our solutions as colleges and universities worldwide seek to extend their brands by accessing the growing global market for higher education.

Undergraduate

We also believe that there may be significant opportunities in the future to offer high-quality digital education experiences to undergraduate students.