E-learning companies making the grade

Online education companies continue to be teachers' pets on Wall Street, outperforming their peers and surprising investors and analysts with exceptional earnings.

E-learning companies continue to be teachers' pets on Wall Street, even during the economic downturn that has slapped failing grades on other technology start-ups.

The sector has been outperforming companies in the broader technology industry, and many e-learning companies got another big boost this week because of positive earnings reports.

"They're on fire," WR Hambrecht senior analyst Trace Urdan said Tuesday. Urdan said corporate America spends roughly $60 billion on education and training programs, while the U.S. government spends $40 billion.

"That entire $100 billion is up for grabs," Urdan said. "It's cowboy country at a very early stage. These companies continue to report strong revenue growth, and they've stuck by their IPO promises, which really sets them apart from other young tech companies."

Monday, Apollo Group reported third-quarter earnings of $34.2 million, or 29 cents a share, up from $21.1 million, or 19 cents a share, in the same quarter last year. Profit for the quarter, which ended May 31, was 6 cents more than a consensus of analysts polled by First Call.

Most impressive was the scorching growth from Apollo's online spinoff, University of Phoenix Online. The e-learning subsidiary increased sales growth by 91 percent, to $54.1 million. University of Phoenix Online earned $1.2 million, or 17 cents a share for the quarter--nearly doubling the First Call expectation of 9 cents per share.

Phoenix-based Apollo Group--the most high-profile education company--launched a major marketing blitz last year for its University of Phoenix Online program, which allows adults to get graduate degrees in business administration entirely by way of the Web. Monday, Phoenix Online announced an 86.5 percent enrollment growth from the same period last year, and it now has 25,000 students.

The University of Phoenix spun off its online division as a separate company in an IPO in September. The shares, offered at $14, trade at $46.47, up 23 percent since the beginning of the week and up 44 percent since the beginning of the year. Apollo Group trades at $42.05, up a respectable 9 percent since the beginning of the week and up 28 percent since the beginning of the year.

Although Phoenix Online seems to be the brightest student, rivals in the e-learning space are also making high marks. Stock in Baltimore-based Sylvan Learning Systems, which serves corporate and individual e-learning markets, is up 58 percent since January, including a 27 percent bump since the beginning of June.

E-learning companies specialize in a range of products, from online masters degrees in business administration to technical certification for programmers and other information technology workers. Ministry schools are even entering the field, and the Association of Theological Schools is developing procedures and standards for accrediting distance-education programs. Universities are also jockeying for a share in the profits, but they are developing for-profit online divisions more cautiously than the private sector.

According to a Market Data Retrieval survey, 48 percent of traditional two- and four-year institutions offered online courses in 1998, and 70 percent offered them in 2000. Two universities--Jones International University of Englewood, Colo., and Capella University of Minneapolis--are entirely Web-based.

Although investors dismissed the for-profit education industry in the mid-1990s as dull and risk-averse, it has roared back into favor and is enjoying the spotlight as a reliable, recession-proof haven for those who have grown weary of technology stocks' hair-raising volatility.

The online-learning industry is expected to grow from $6.3 billion in 2001 to more than $23 billion in 2004, according to market researcher IDC. The growth is tied to the explosion in e-business and the growing demand for continued professional development. Oracle, SAP and other enterprise software companies are quickly jumping into the sector with their own products.

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