A class action lawsuit was filed against 2U, Inc. (TWOU) by Levi & Korsinsky on June 13, 2024. The plaintiffs (shareholders) alleged that they bought TWOU stock at artificially inflated prices between February 9, 2022 and February 12, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought 2U stock during that period can click here to learn about joining the lawsuit.
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2U operates an online education platform called edX through which it offers both degree and non-degree educational programs. The company partners with colleges, universities, and industry experts to offer these programs. As of date, 2U boasts more than 260 partners, over 4,600 digital offerings, and a learner network of over 86 million.
2U’s Misleading Claims
According to the lawsuit, 2U and three of its current and/or former senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. The company’s claims about its relationships with important universities and organizations are at the heart of the complaint.
For instance, during the Class Period, the company noted that its contracts with universities typically spanned 10 to 15 years and had a single performance obligation, which is to attract, enroll, educate, and support students.
Furthermore, in a press release in February 2023, 2U’s ex-CEO noted that the company was attracting new partners and content and trying to drive revenue growth from its enterprise clients. Plus, 2U was boosting its marketing efficiency to deliver meaningful EBITDA (earnings before interest tax depreciation and amortization) growth.
Plaintiffs’ Arguments
The plaintiffs maintain that 2U and the Defendants deceived investors by repeatedly making false and misleading public statements about the company’s business practices and prospects during the Class Period. Particularly, they are accused of omitting truthful information about the company’s ability to maintain relationships with important universities and organizations and ancillary issues from SEC filings and related material.
The information became clear in a series of events that took place on November 9, 2023, and February 12, 2024. In particular, on February 12, 2024, 2U released its Q4 and full-year Fiscal 2023 results. In the same filing, the company mentioned that it was strategizing ways to refinance its term loan or raise additional capital to reduce its debt. In the event that these obligations were unmet, the company noted that “there is substantial doubt about its ability to continue as a going concern.”
Moreover, the company mentioned that it had earned $88 million in revenue from portfolio management activities, which refers to the mutually negotiated exit of certain degree programs. 2U also added that it would assume another $10 million and $15 million from such activities in Q1 FY24 and FY24, respectively.
Overall, 2U failed to maintain meaningful relationships with its partner universities and organizations, which is fundamental to the smooth functioning of its educational platform. This was in contrast to the aforementioned claims about long-term contracts and the addition of new partners.
The events caused TWOU stock to lose nearly 88% so far in 2024.
