A Form 10-K is an annual report required by the U.S. Securities and Exchange Commission (SEC) that gives a comprehensive summary of a company’s financial performance.
Breakdown of edX Acquisition
2U’s 10-K Form includes a table that gives an indication of how they came up with the purchase price for edX.
The edX “trade name” was valued at $255 million, while edX’s university and enterprise partnerships were valued at $104 and $14.3 million, respectively.
The acquisition was assigned a “Goodwill” of $423.5 million. If I understand correctly, the fair market value for edX was determined to be $350 million, but 2U is willing to pay an extra $423.5 million to acquire edX.
Edx was constantly referred to as “edX Marketplace”, and integrating other 2U products like their online degrees, Trilogy Bootcamps, and GetSmarter online courses is a key part of 2U’s growth strategy.
The 10-K Form also provided a table (for illustrative purposes) of what their revenue and losses would have been if the edX acquisition had occurred on January 1st, 2020. I have reproduced the table below as well as the actual revenue and loss numbers as reported by 2U.
Revenue & losses if edX were acquired on Jan 1, 2020
This shows the extent of the risk 2U took with the edX acquisition: 2U losses jumped by over 50% while having minimal impact on revenue.
Though it didn’t explicitly say so, I found a hint as to the reason in the “Risks Related to Our Operations and Our Growth Strategy”.
2U mentions that they could be impacted by changes in search engine methodologies and state: “we have experienced fluctuations in our search result listings and website traffic based on changes to search engine algorithms”.
The same phrase exists in their 2020 10-K, so unfortunately, it doesn’t tell us much.
Dhawal is the CEO of Class Central, the most popular search engine and review site for online courses and MOOCs. He has completed over a dozen MOOCs and has written over 200 articles about the MOOC space, including contributions to TechCrunch, EdSurge, Quartz, and VentureBeat.