MOTLEY FOOL: Why Apollo Education Group Inc Fell 27% in June

Career College Central Summary:

  • What: After dropping another 22% last month, University of Phoenix parent company Apollo Education Group (NASDAQ:APOL) has seen its shares trade down more than 60% year-to-date.
  • So what: As you can see in the chart…the huge decline is concentrated in basically three sharp drops, corresponding with bad news that has become the norm at for-profit colleges: fewer and fewer students are choosing to attend them. Last quarter, the University of Phoenix saw both new student and current enrollment fall almost 15%, making a direct impact on both the top and bottom lines.
  • Total revenue decreased 14%, while operating income fell 22% for the quarter, largely due to increased discounting of tuitions.
  • Now what: Frankly, it is hard to see things getting better before they get even worse for the entire sector. An improving jobs market, increasing wages, and a strengthening economy all have been key factors behind the decline in attendance at all for-profit colleges — not just the University of Phoenix — which rely on more non-traditional students for a bigger portion of their enrollment. If these potential students are finding jobs, then for-profit colleges will continue to lose out.
  • There is more to be concerned about, too. As much as new student enrollment declines are concerning, there is evidence that student retention is a growing problem. On the most recent earnings call, interim CFO Joseph D'Amico said that "retention-based scholarships" — industry-speak for a tuition cut to retain student enrollment — increased discounts by about one percentage point last quarter (about 8% more than the company was expecting) and that upwards trend was likely to hold true for the rest of the year.

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