Smooth Transition for University of Arizona Global Campus and Continued Momentum for FullStack Academy and TutorMe Lead to Strong 2021 Guidance

24 February 2021

Key Points

  • Zovio’s CEO indicated that the fourth quarter results reflected a better than expected transition of the core business to the University of Arizona Global Campus (UAGC) and continued momentum at FullStack Academy and TutorMe. 
  • For the first time the company provided segment information to investors with two segments: the University Partners segment, consisting primarily of the contract with UAGC, and the Zovio Growth segment,  consisting mainly of FullStack Academy and TutorMe.
  • The company raised 2021 revenue guidance from $300 million to $310 million (midpoint) and provided EBITDA guidance in the “mid single digits”.  This implies about $283 million of revenues and $22 million of EBITDA for the University Partners segment, and about $27 million in revenues and negative $6 – 8 million in EBITDA for the Zovio Growth segment.   
  • Management stated that UAGC had a solid December and continues to experience favorable trends in the beginning of 2021. Some disruptions from the name change were expected, but these seem to have been anticipated and minimized by management.  The company set modest new business gains goals for this segment as sale cycles for enterprise deals are likely to be fairly extended.
  • FullStack Academy ended the year with 12 partners and management expects seven to 10 new partners in 2021.  New partners typically sign five-year deals and become profitable after 18 months.  TutorMe ended the year with about 200 partners and is expected to add 50 to 60 new partners in 2021. Zovio’s CEO expects this segment to turn EBITDA positive in 2023.    
  • Fast growing ed tech companies can trade within wide ranges of revenue multiples.  A typical multiple range for businesses comparable to Zovio Growth is 3 to 5 times revenues.  Education businesses with  stable EBITDA profiles such as the University Partners segment tend to trade at a 6 to 8 multiple of EBITDA. 
  • The company continues to have a strong balance sheet with about $55 million in cash and no debt.

Our Insights

The Opportunities

The UAGC contract should provide a solid base for Zovio and could facilitate the development of additional university partnerships. Zovio’s data history and data analytics capabilities will likely be a significant differentiating factor in that space. Zovio Growth is aligned with the burgeoning demand for targeted, often work-related, discrete demand for custom learning content. The Covid-19 crisis is accelerating the secular trend toward more distance learning and is forcing universities to build up their capabilities and offerings in that space.

The Obstacles

Zovio needs the UAGC to be successful and to grow. We believe the right ingredients are in place for success, but execution will be key. While the Covid-19 crisis has accelerated many secular trends favorable to Zovio, continued negative economic impact could affect the company’s results.