Higher education company Grand Canyon Education (NASDAQ:LOPE) met Wall Street’s revenue expectations in Q3 CY2024, with sales up 7.4% year on year to $238.3 million. On the other hand, the company expects next quarter’s revenue to be around $289.5 million, close to analysts’ estimates. Its GAAP profit of $1.42 per share was also in line with analysts’ consensus estimates.
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Grand Canyon Education (LOPE) Q3 CY2024 Highlights:
- Revenue: $238.3 million vs analyst estimates of $239.7 million (in line)
- EPS (GAAP): $1.42 vs analyst expectations of $1.41 (in line)
- EBITDA: $66.33 million vs analyst estimates of $62.9 million (5.5% beat)
- Revenue Guidance for Q4 CY2024 is $289.5 million at the midpoint, roughly in line with what analysts were expecting
- EPS (GAAP) guidance for the full year is $7.78 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 50%, in line with the same quarter last year
- Operating Margin: 20.2%, up from 18.7% in the same quarter last year
- EBITDA Margin: 27.8%, up from 25.7% in the same quarter last year
- Free Cash Flow was -$38.95 million compared to -$46.44 million in the same quarter last year
- Students: 123,002, in line with the same quarter last year
- Market Capitalization: $4.06 billion
Company Overview
Founded in 1949, Grand Canyon Education (NASDAQ:LOPE) is an educational services provider known for its operation at Grand Canyon University.
Education Services
A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales Growth
A company’s long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Unfortunately, Grand Canyon Education’s 6.5% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way, a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Grand Canyon Education’s annualized revenue growth of 6.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
We can dig further into the company’s revenue dynamics by analyzing its number of students, which reached 123,002 in the latest quarter. Over the last two years, Grand Canyon Education’s students averaged 4.2% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company’s monetization has risen.
This quarter, Grand Canyon Education grew its revenue by 7.4% year on year, and its $238.3 million of revenue was in line with Wall Street’s estimates. Management is currently guiding for a 4% year-on-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months, similar to its two-year rate. This projection is underwhelming and shows the market thinks its newer products and services will not accelerate its top-line performance yet.
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Cash Is King
Grand Canyon Education has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 21.8% over the last two years, quite impressive for a consumer discretionary business.
Grand Canyon Education burned through $38.95 million of cash in Q3, equivalent to a negative 16.3% margin. The company’s cash burn was similar to its $46.44 million of lost cash in the same quarter last year . These numbers deviate from its longer-term margin, raising some eyebrows.
Over the next year, analysts’ consensus estimates show they’re expecting Grand Canyon Education’s free cash flow margin of 22.8% for the last 12 months to remain the same.
Key Takeaways from Grand Canyon Education’s Q3 Results
It was good to see Grand Canyon Education beat analysts’ EBITDA expectations this quarter. We were also glad next quarter’s EPS guidance exceeded Wall Street’s estimates. On the other hand, its number of students missed and its revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $160.15 immediately after reporting.
Is Grand Canyon Education an attractive investment opportunity at the current price? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
