Motley Fool Money - The Future of Education

Episode Date: June 14, 2019

  Lululemon takes a breather. Casey’s General Store hits a new high. Restoration Hardware raises the roof. And Blue Apron delivers a reverse stock split. Analysts Andy Cross, Ron Gross, and Jason Moser discuss those stories and weigh in on Chewy’s IPO, Dave & Buster’s earnings, and bad bank names. Plus, Motley Fool co-founder David Gardner talks with 2U CEO Chip Paucek about the future of education. Get $50 off your first job post at www.LinkedIn.com/Fool.   Learn more about your ad choices. Visit megaphone.fm/adchoices

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Thanks to LinkedIn for supporting this week's Motley Fool Money. LinkedIn Jobs makes it easy to get matched with quality candidates who make the most sense for your role. Post a job today at LinkedIn.com slash fool and get $50 off your first job post. Everybody needs money. That's why they call it money. From Fool Global Headquarters, this is Motley Fool Money Radio Show. I'm Chris Hell. Joining me in studio this week's senior analyst Jason Moser, Andy Cross, and Ron Gross. Good to see you, as always, gentlemen. Hi, Chris. Howdy? We've got the latest headlines from Wall Street. We've got a conversation between David Gardner and CEO Chip Pousick. And as always, we'll give you an inside look at the stocks on our radar.

But we're going to start with some retail earnings, shares of Lulu Lemonette. Athletica basically flat this week, despite a good first quarter report. And they raised guidance to Andy. What gives here? Well, the stock's at a near all-time high at about $175. It's up 143 percent, Chris, over the last three years. Compare that against Nike, which is up 55 percent. And I won't even mention about Under Armour. I'll leave that go. I mean, this is a really impressive company and what they've been doing, especially in the Omni Channel, but just overall for the first quarter results, the sales were up 20 percent.

That was ahead of analyst expectations. Earnings per share up 35%. Again, ahead of analyst expectations. Comp store sales were up 14%. I was a little bit down from last year, but about even on the constant, if you look at constant currencies, the digital sales, Chris,

continue to really be the driver for Lulu Lemon. Those comps were up 41%. And the direct-to-consumer was up 33%. And it's a little bit slower than all of last year, which was up 49%. But that's really the driver. It's a higher margin business. Lou Lemon continues to really do very well when they think about their store presence, as well as their digital presence.

And they're linking those two together in more and more ways. That's really impressive. And they're rolling out more and more of the buy online, pick it up in the store, and they get that store traffic in there that's really profitable for them. They're talking more and more about men's apparel, yes? Yeah, they are, definitely. It's one of their three pillars of growth, Ron. It will surprise no one at this table that I went to try on some Lulet Lemon apparel,

and it did not fit my body type. So I hope they have more success with the more fit gentlemen. You need to do some more yoga. Yeah, you do have to do more. I mean, there are more than 10 million men now who do yoga, and it's a growing space for them. I happen to own a few pairs of Lue Lemon pants. I like very much.

I own, like a be beanie as well, too. What do you mean a beanie? Like a little skull cap that you kind of wear when it's cold, or when you go to your yoga studio, Ron, so you work out. So, it is a growing presence. That along with International, when they laid out there, when they laid out their growth plans, looking at International, looking at Men's. It's a market that is growing overall as we get more and more health conscious, and Lou Lemon is benefiting from that.

I'm glad you mentioned International because Calvin McDonald's been CEO for less than a year. He's talked about how they're looking to grow men's and digital, and those seem to be pretty modest goals, achievable goals over the next few years. He's talking about growing up. international sales by a factor of four. Yeah, it's only about a tenth of their sales, Chris, overall. So it's a small part of it. Men's, they're looking at more than a double. Same with digital.

Those are larger businesses for them. So the international market, China was a really bright spot for them as their e-commerce sales in China more than double last quarter. So considering the health trends around the world, Lou Lem is playing in a really nice spot right now. Casey's general stores wrapped up the fiscal year in style. Fourth quarter profits in revenue came in higher than expected. and shares of Casey's General up nearly 15 percent, hitting an all-time high, Ron. An all-time high for a store I've never even seen.

Beat expectations, EPS up 33 percent in the quarter, thanks to opening of new stores, 5.7 percent increase in same-store sales. That's a pretty big number. Expanding gross margins, all combined to, as I said, an increase in EPS of 33 percent. Fuel sales were weak, but they made up for it in strength in grosser. and prepared foods. They just launched an e-commerce site. So welcome to the 21st century Casey General stores. Nice to see. They've got a fuel fleet card program that's working really well, and they're launching a mobile app. Company is executing. Ron, you've got to get outside the East Coast, man. Now that your son's going to be going to school in the Midwest, maybe you can visit

Casey's there. I shall. Well known for their pizza, right? Yes, very much so. We need to get a little boots on the ground research, Ron. To Andy's point, let us know. This company has increased their dividend for 19 consecutive years. It's a very impressive company. On the way to becoming a dividend aristocrat. All kidding aside about Ron's travel. Are they talking at all about expanding outside of the Midwest? You look at where their stores are located and the coasts are completely excluded. They're not talking a lot about it. They've got 2,150 stores, let's say. There were 70 new stores over the last year that continue to put up stores, but in the same relative geographic area. We'll see in a couple of years what they say.

Another week, another hot IPO. Chewy, the online business of PetSmart, went public at $22 a share Friday morning, and promptly shot up more than 75 percent, Jason. Just another day in the market. That's it, only 70 percent. Well, I mean, it's pretty impressive. When you look, it gives it around a $15 billion market cap here at the end of the day, which is impressive, given the company is only bringing in about $3.5 billion in revenue and is still profitable. But it is growing. You know I love the pet market. It's a huge opportunity. It has a lot of

tailwinds and more and more people, particularly younger generations are finding they're taking to having pets. And in the S-1, they list the total market opportunity there of $70 billion. The breakdown of 42% in food and 22% in supplies and over-the-counter meds really is in Chewy's wheelhouse. And so that's the immediate opportunity. This means, this makes me think a little bit of Wayfair back in the day when it went public, because it's a neat business. You see the merits of it, but then you immediately ask yourself the question, what keeps Amazon at bay here? Because Amazon definitely sells this same kind of stuff. And I mean, they're chalking up more than a billion dollars annually in pet food and supply sales.

And that number is growing as well. It really does all come down to customer centricity, I think. With both Amazon and Chewy, they both claim to be very customer-centric. They hire to keep customers happy by giving them great customer service. That's terrific. I don't know how well that's going to protect them as they continue to get bigger, but the numbers don't lie. I mean, from fiscal year 2012 to now, revenue grew from 26 million to 3.5 billion. Net sales per active customer grew from $223 to $334. So they're doing something right, obviously. I think firing in on a big market opportunity and where people are doing most of their commerce, it is worth noting that PetSmart will be the majority owner of this business

with the IPO spun off still. When you draw comparisons to Wayfair, it's probably worth remembering for anyone who's looking at Chewy and thinking about the opportunities here. It's worth probably reminding folks that Wayfair has spent a lot of money on marketing, and it's probably reasonable to expect that Chewy is going to be spending a lot of money as well. I think that's a very fair statement. Customer acquisition costs are huge in the early days, and it's imperative that once

they get those customers, they keep them. It does seem like they built a pretty loyal customer base, but time will tell. RH, known to the rest of us as Restoration Hardware, having a good week. Shares of RH up more than 20% after a strong first quarter report. They also raised guidance Ron. They kind of needed this one because it's been a little rocky lately for R.H. Another story I've never been in. I should get out a little more. Yeah, they're off 30% from their late February high due to some soft revenue last quarter. But this quarter looked good. Let's not forget they went public again in November of 2012 at a price of $24 a share. Stock stands now at 109. So a nice run since going

public after having been taken private in 2008. They've reinvented themselves, showrooms into galleries. They changed and updated their product offerings, added a loyalty program. All those things are showing up in the numbers this quarter. Revenue up 7%. Operating margins really strong. Adjusted net income up 48%. That's a huge number. They have taken steps to mitigate the impact of tariffs. They've put some price creases in place. They've renegotiated product costs, and they've shifted some supply chains out of China. So good to see that they're being proactive there. A substantial increase, as you mentioned, in guidance for the fiscal year. Companies only trading at 12 times earnings at this current price, but the industry only trades at 13. So not

necessarily cheap. You mentioned how they have been selective in increasing prices. It really does seem, though, like if they are smart about that, they can continue to do that because, look, they sell expensive stuff. Yeah, they've turned themselves into really a luxury brand, a luxury company to their credit, not always an easy thing to do. So they probably do still have room. Really interesting comment from the chairman, the CEO, actually, he says his company remains undervalued. It actually said those words, and they're buying back stock to prove it. Can I just say I would watch the heck out of a reality series called Ron Go Shopping? You see me at my computer.

No, no. Someone takes Ron across America going to publicly traded stores that he's never been to before. I would watch it. Incorporate a little yoga at the end of each episode, downward value. A little meditation, Ron. I can't even touch my toes. You want me to go to yoga? Coming up, the latest reminder that rebranding does not always go well.

Stay right here. You're listening to Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money, Chris Hill, here in studio with Jason Moser, Andy Cross, and Ron Gross. Dave & Buster's first quarter report featured the company's first profit miss in five years. Shares of Dave and Busters felt 20 percent this week, Andy. Was it that bad? Well, the comp trend, really, when you look at the last.

last few quarters, they reported, in this quarter, they reported they are down 0.3%. That was versus a 2.9% growth in the previous quarter. And the trend really had been improving, and then it kind of reversed. So I think when you look at what investors were looking forward to with Dave and Busters, they continue to do well in the amusement. So in the gaming, which is about 60% of the business, but it's really the food and beverage, Chris, that is just continues to drag them down. And the cost there continue to increase. so their profit margins are dropping. So overall, I think investors just not really impressed with what they were seen in Dave and Busters and clearly reflected it in the stock price.

Well, and one of the things they mentioned in this report was how the new locations are doing pretty well. The comp locations that have been open for more than a year are falling off a little bit. And that's, I don't care what retail business you're in. You never want to see that. Yeah, from just the category of walking in. So the walk-ins they call it, on the comp side, that was down point-point. 6% versus special events, which was up 3.3%. But the walking is the biggest part of their traffic. So you add this all in, and they lowered their guidance for the year, both on revenue, comp growth and net income.

And so they might actually show a net income drop this year. And so investors punish the stock. For the record, I have been to a David Buzzer several times. Shares of Blue Apron fell more than 10% on Friday, but the stock price is going to soar on Monday, guys. And that's because Blue Apron announced a 1 for 15. reverse stock split that takes effect at the market close on Friday. And, Jason, of all the red flags for investors, this one seems like it might be the reddest. Yeah, Chris, I mean, you know, I like to keep an open mind when it comes to investing. Rarely

do I try to look at things in absolutes. There's always some gray area. Wouldn't you agree? For sure. Two sides to every trade. In this case, I think I'm going to have to make an exception. It is hard to imagine. This isn't a one-way ticket to Bagel Town, as I like to call it. it. This is all really based on New York Stock Exchange guidelines. And I'll read you the guideline here all quick so the listeners will understand. It says that a company will be considered to be below compliance standards if the average closing price of a security as reported on the consolidated

tape is less than $1 over a consecutive 30 trading day period. And so that tells you really all you need to know. Blue Apron stock is in the tank, and it's hard to imagine it really is going to come back. Reverse stock split, notwithstand. I mean, this is just basically financial engineering. I've made fun of Pandora for a long time as having some of the worst financials I'd ever seen. Blue Apron really is right up there. And I think the problem is that they're caught in this situation where meal prep, the meal prep business is somewhat of a fad. And it is a market where there is no real distinct or sustainable competitive advantage. And we're watching that story play out here.

In February, SunTrust and BB&T announced a $66 billion merger, the largest bank deal in a decade. This week, the merged entity announced their new name, Truist. Not truest as in the most true. No, this is truest like someone took the word trust and then misspelled it by inserting the letter I. And unanimously, the reaction was negative. And Jason, for the life of me, I don't know how they came up with this. and why they didn't check with us.

So, I, well, yeah, you're right. My first inclination, my first impression was that this was a typo. I thought, that must, that can't be right. It must be trust. And then the only thing I can fathom is maybe this is a play on the word altruism. And they just think they're serving, you know, God, man, and country, and everyone else in between being just the best bank in the world. I don't know.

It's hard to imagine why they wouldn't go with just SunTrust or BB&T, though. I want to see a video of the PR agency with everyone sitting around the table, one of the account guys suggests Truis and the whole place lights up yes, that's our name. This is amazing promotion for that guy.

How could that be? Terry nailed it. I mean, it seems like that would come straight from an episode of Family Guy or something. The same firm that came up with Mondalese or Capri for Michael Coors or Tapestry for Coach. Now, we don't have video, but I did get an email

from one employee who requested anonymity. and said that when the video announcement was live streamed for employees, there was no applause in the room because they thought the name was a joke. They thought, oh, this is the joke name, and then the real name is going to come. And that's, you know, if you're with SunTrust or BB and team management, that's not a good sign when your own employees. Terry might have got demoted there. I mean, we're having fun with this, and it's all fun in games here now.

But if they decide to go through with this, I think the chances are very good. that probably in a couple of years, they decide they maybe need to rebrand to another name. There are a lot of costs involved with that. Beyond just the cash that you're throwing out there for marketing and sales and whatnot, I mean, you've got a brand reputation. There's brand equity at sake here. I just have to believe they're rethinking this. Even the people at Tronk, the reverse course, when it came to Tron. History is on our side, Chris. All right, let's get those stocks on our radar. Man behind the glass. Steve Roy, I'll hit you

with a question. Ron, you're up first. What are you looking at this week? I'm going to go back to Hillrom Holdings, HRC. They're a medical equipment company. They're focused on monitoring patient support, surgical solutions. New opportunities of connected care should lead to revenue growth, margin expansion. A lot of untapped potential internationally, particularly in Asia. A 2015 acquisition of Welch Allen really increased their exposure to medical diagnostics. 15th consecutive quarter of double-digit earnings growth announced in April, and they've raised their dividends for nine consecutive years.

Steve, question about Hillrom Holdings? You bet. How does the virtual doctor trend play into this business? It actually is a risk to this business, which is why they spent $2 billion in 2015 to acquire a company to do outpatient services to reach the person at their home rather than just relying on the hospital bed. Jason Moser, what are you looking at? Sure. Taking a look at Axon Enterprises, ticker A-AXN, they are responsible for those taser weapons and on-body cameras and the software to run all those systems that law enforcement

uses around the country. The company initially got on my radar in their building out, in my building out research for the AR service that we just launched. But back in early 2018, Axon hired on a team of imaging engineers to incorporate AR, VR, VR, and AI into the fold. So whether it's in the form of training or perhaps even creating holistic scenes of incidents as they are happening in real time, there are a lot of popular. possibilities here as they bring more technology into the mix there. And I think, honestly, we want police to be able to do their jobs, but we also want more transparency in what's going on. And that really is what AXon is playing into. It's solid fundamentals. Seems like they're growing.

Could be a good opportunity here. Steve, question about AXon? So I'm a shareholder. How do they deal with all this footage? I mean, they must have just thousands of hours of footage to go through, and where do they keep it all? It's all on the cloud, Steve. Andy Cross, what are you looking at? I'm looking at Adobe, Chris. The software company, that provides Photoshop and Acrobat, Illustrator, Lightroom, Creative Cloud Solutions, reports earnings next Tuesday, $134 billion market cap. Stock's done really well over time since we recommended it.

Stock Advisor, it's up more than 700%. They announced a really interesting partnership with Microsoft that kind of merges together the cloud solution. So I'm looking to see what they say more about this partnership with Microsoft to go after Salesforce. Steve, are you buying or selling PDFs? Just the electronic versions. I'm keeping them. I'm buying them, Steve. What do you want to add to your watch list, Steve?

Well, I own AXon and Adobe, so I'll go with Hillron Holding. All right. All right, guys, thanks for being here. Up next, a conversation about disrupting education with 2U CEO, Chip Pousick. Stay right here. This is Motley Full Money. Quick shout out to LinkedIn. When you're looking to hire for your small business, naturally you want to find the best person for the job,

and there's a really good chance that person's already on LinkedIn. LinkedIn Jobs makes it easy to get matched with quality candidates who make the most sense for your role. People go to LinkedIn every day to learn and advance their careers. So LinkedIn understands what they're interested in and what they're looking for, and that means when you use LinkedIn jobs to hire someone, your matches are based on a lot more than just a resume. Of course, the matches are based on the skills and the background of the people that you're looking for. You always want to see that, but it's also matched on their interests and their activities and passions.

So post a job today at LinkedIn.com slash Fool and get $50 off your first job post. That's LinkedIn.com slash Fool. Terms and conditions apply. So be true to your school. Welcome back to Motley Fool Money. I'm Chris Hill. Last week was FoolFest 2019, our two-day investing conference, complete with breakout sessions on a wide range of investing topics. One of the featured guests on our main stage was Chip Pousick, the co-founder and CEO of 2U, an educational tech company based here in the Washington, D.C. area.

He sat down with Motley Fool co-founder David Gardner to talk about corporate culture, disrupting education, student debt, and much more. And David kicked things off by asking Chip about the business of 2U. But let's start first Chip with 2U, your company. I know a lot of us own some shares out there. It's a rule breaker pick. It hasn't had a great last year. We're going to talk about that a little bit later.

Or good month. This month, I'm thrilled to be in a room of long-focused investors. Yes. And over the last 30 days, I've been in a room of the other type quite consistently. Okay. We'll talk about that. Let's talk first about the business, though. Yeah.

For anybody who doesn't know what to you does, brief overview from the CEO, please. So I started the company 11 years ago. We partnered with top universities to build what we believe is the world's best digital education. We recently took the word digital off that because we've gradually expanded the number of blended opportunities. But the whole idea here is why should you pick up your life, quit your job, and move to attend a great education experience like grad school. So we have many different program examples that are on our degree side. And over the last two years as a public company, we've built a really large market leading segment called alternative credentials, where you're getting a certificate from a school like Oxford to learn artificial.

intelligence or you're taking a boot camp from a school like Georgia Tech to learn how to become a full-stack web developer. So that's all brand new, but for you, this community of people has sort of been around us for a long time. And I don't mean how bad we were just noting that I think I met you for the first time in like 98. It was a long time ago. But with 2U, the business that we've sort of built, our legacy business has been our graduate degrees. and that business is still growing really nicely. Company overall, the reality is the world today is still mostly not digital in higher ed.

So the estimate is that about 2% of the world's higher education is digital. So when you start thinking about what that means long term and you think about how big higher education is and how few large companies there are, what makes me very proud is we're the market leader in a variety of ways, and I don't mean our stock price. I mean, you know, what the business actually delivers, I think you can argue is a social mobility engine.

And as the world goes more and more digital, we're in a prime position to sort of drive a Mack truck through that opportunity, and that's what we're trying to do. And Chip, what is the economic model? How does 2U make money? We share tuition revenue with our university partners over long contracts. The 2U takes somewhere in the ballpark of 60 plus percent of the tuition, and the reason for that, we provide a comprehensive operational.

system called 2 UOS that is a combination of people, technology, and data to build, deliver, and support these programs. And it ranges from everything to, from finding the students for the university partner to supporting them, to putting them in clinical placement experiences. So as an example, one of our programs is a Master of Science in Midwifery. Well, you wouldn't want to go to the midwife that delivered the virtual babies. So like, we actually find a placement for you to deliver 30 babies, and that's part of your curriculum, things that might not be exciting but are really important to the university partner

like accessibility, cybersecurity, privacy with the world of GDPR and the complexities about privacy law. We provide a privacy practice to our schools. So it's a comprehensive approach. The university does all academic functions, does all admissions decisions. It's really their program. It's not ours. So you can think about it almost as a joint venture expressed through a revenue share where I'm kind of the subservient partner. The way I've always seen your business and what I really appreciate about it is that it feels as if for esteemed graduate degrees and universities, you're basically showing up and you're saying, hey, we will give you more students than you have right now because you

just have the ones on campus and we can bring them from anywhere and so let's partner up and let's share revenue over long periods of time. That's right. Simple as that. That's right. I saw it firsthand last weekend. I was in the University of North Carolina Business School, Keenan Flagler, which was, I think,

your first business school? It was our first business school. Yes. And one thing I noticed about that, and I really enjoyed speaking, there were about 200 graduates. Let me say, I'm going to say there were 1,400 graduates so far over maybe almost 10 years now. Over 10 years, about 1,400 graduates. Right.

And so about 250 of them had taken the time to come back to Chapel Hill. Which is pretty incredible. I mean, if you look at, like, the percentage of students that have graduated from the school overall in some recent period was like 40,000, and they had a reunion and like 400 came, and in our program, 1400 and 250 came, you know, it shows. Online education done this way is super intimate. It's not what you think. You're not a random one or zero.

You're not a random master student. You know, you're becoming a tar heel. You know, you're not just sort of a miscellaneous, you know, name without a face. They're very intimate. You saw it. It's super fun. The reason I know, and part of the reason that I was there, I was there, day before David is I graduated from that same program,

so we're both tar heels. I took the MBA program while I was running to you. I didn't do it to eat my own dog food. I didn't do it for the hair club for Men Effect. I did it because I wanted it. And I was a liberal arts major at GW, and I had read balance sheets for many years, but I'd never made one.

I talked about regressions, but I'd never built one. And I really wanted it. And my wife and my board supported me. Fortunately, they both thought I was a little crazy, but I went for it. And I did an IPO while in the MBA program, which we're not sure if anybody's ever done that before. It was complicated. Because, you know, you have live classes. So I took live classes from Dublin, Dubai, Hong Kong, all over Cape Town.

Let's talk about tuition rates. This is obviously something that you and your company deal with. It's a national issue. It's becoming a social issue, the idea that it's so incredibly expensive to go to college today. It's far more, I mean, if tuition rates keep going up, whatever it is, four, five, six, seven percent a year, the math just ends up not working out. So how do you partner with universities? Do graduate school tuitions rise as much as undergraduate tuitions?

I'm not quite sure the financial dynamics, but how do you play within that realm? So I would say, first of all, you know, we care about it deeply. We're spending much more time on it than would be obvious. So you can think about it from a program design standpoint. How do you design the program up front to be more affordable to somebody? So as an example, that undergrad program that I'm talking about is disruptively priced. Part of the reason we think it'll be big news. So it's an incredible brand, disruptively priced.

Some of it's program design. But on an existing program, there's no question that figuring out how to hold back the tuition increases is a big part of our challenge over the next five years. Do you have any control over that? We don't. I would say that's one of the... one of the tricky things, we have influence but no control. And one of the things that gets a little silly about the bear case that's out on the street at times about two you,

is that somehow we're the puppet master with the marionette strings and the school is in the middle and they're doing everything I tell them to do. So the schools are in charge of the program and that affects things in our business. So tuition is one of them. Now I will tell you that we've got a pretty receptive group partners today in thinking about how to pull back costs, maybe more than they were, let's say

even three, four years ago. So we're working on a variety of things to do that. You know, 2U participates very actively in scholarship plans across our portfolio. So that's built into our business. We're going to talk about that more to help us on the bare case side because people don't realize that we actually do spend quite a bit on scholarships inside the system. But creating more affordable options for people to enter is one thing. You also have to remember that online versus campus, what makes it tricky, one of the aspects that's tricky about being public for me as CEO is that anything I say in a public earnings call or a setting like this, I have to be comfortable with all of my clients hearing. And that's tricky. So very often the

reason we curtail something that we might think it'd be easy to say is not because it's material on public information. Then we can't say it anyway. It's because it, could upset the client. And so conversations about how things happen at the client's side, that's a very tricky place to be. I have to be careful about how much I say publicly. So an example of that is online versus campus. You know, we don't compare ourselves in our online programs

to our campus programs, because in some ways we are the campus program. We're just the online expression of it. And an example of where that matters is debt burden, where if you've picked up your life, quit your job, and moved, and you're physically at the campus, if you're taking out loans, you typically have to do it for both the room and board and for the opportunity cost of your lost income.

Whereas in the online program, almost everybody stays employed. I mean, that's a big part of the value problem. So down at North Carolina, another thing I heard last weekend was the dean say, our model's broken, we know it. How we get paid just doesn't make sense anymore. This is a guy who's more from business, not from academia, and he's running a business school,

but it was really compelling what he was saying. He was saying, we're not going to be able to change this next year. It's just too sudden. But he said, it makes no sense in this regard. We're asking people who don't have money at that stage of their life for a lot of money. And then later on, when they have money, we don't ask or get anything from them unless they want to be generous and donate. And so he was saying, it makes more sense he was saying Dean Shackleford to move to a subscription model, where maybe you subscribe over a longer period of time.

you have a longer association. So that was very disruptive, that kind of thinking, and probably it's overdue for all of higher education. And I'm just curious what you think when he says something like that and how you think about that for two of you. Yeah, I get very excited. So the career curriculum continuum, if you look on our investor disclosures,

you'll see that we think it starts with sort of bite-sized opportunities for somebody to learn skill and goes to these highly certified longer-form degrees. and there's a lot in between. Longer term, I would love to be able to provide ascription by discipline over the life of a student. We think it's very powerful. Now, we're at the early stages still

of building all of the different product sets. So until you have enough, you really can't do that. But I think it's super powerful. Another thing that relates to maybe what Doug was talking about is you'll see more and more news over time about something that's called an income share agreement. Now, I hate that income share agreements have barely even launched, and they're already controversial,

because it tends to be anything in higher ed finance tends to be controversial. But the idea behind an income share agreement is instead of having a larger amount of tuition up front, you defer the tuition, and then over time, you pay a percent of your income. So there are some startups and some traditional schools that are doing it.

We sort of take an approach to it as deferred tuition can be a lever in improving the marketability of the program. And it does mean that you're sort of willing to say, as a school, hey, the proof is in the pudding here. Like, we're gonna stand behind it. So we think both of those, the notion of subscription and the notion of sort of deferring tuition for a percent of salary, could be really powerful ways

to improve affordability over time. It's really interesting. I mean, you have kind of your two legs of the Colossus here, a stride time, and your first leg you planted on how things have always worked. And tuition share with traditional schools. And then the other part of your leg is on the future that you're hoping to create maybe.

And in between is where we are. And there's a lot of shaking going on right now. Coming up, Chip Pousick weighs in on to you's stock price and shares his advice for the graduating class of 2019. Stay right here. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill.

Let's get back to Motley Fool co-founder David Gardner and his conversation with 2U CEO Chip Pousick in front of a live audience. The stock was rocking along for us in Rule Breakers. It was up nearly 200%. Yeah, I think last year I could have walked in here like Vince McMahon doing that, you know, and that. Then last year happened, it's been about cut in half over the last 12 months. So, I mean, we've seen just you guys are a wonderful local company.

Great glass door reviews. I know people love your culture. We're going to talk about that a little bit. You're doing good work in this world. Your growth in the business is very clear. Why is the stock price in your mind less than half where it was? 12 months ago. And yet we're still up slightly for Rule Breaker members? Well, we officially

did in this quarter lower guidance for the first time. It's the first time that we had a financial number, not some implied number or a whisper number, or all that works, but we actually brought down guidance. Now we brought down guidance 2%. So we brought down guidance just on a pure financial basis

less than most people's ranges. You know, our ranges are pretty tight. And a quarter billion dollar market cap for market cap fans. So just, if you didn't already know that, so chips come just short of $2.5 billion. I had an interesting, you know, you meet many folks doing this, and some of the investors you meet give you legitimately interesting insights and won't name the person, but really good

investor, very smart investor, and sort of occasionally see something. And he said to me on the road just two weeks ago, he said, you know, you're now like, we don't ever see it really, you're like a value growth stock. Now that is not necessarily, you know, good news. We'd rather have. But he said, you know, what's happened is because of you know, what's happened is because of you What's happened is because of that guy down, people are now questioning whether there's something fundamentally wrong inside the business. And once they become sort of convinced like us that there's not something fundamentally wrong,

you just become really attractive. And so what we have to do over the next several quarters is just, you know, put points on the board. Nothing we say right now is going to matter. We're in that sort of moment in time that you go through. And unfortunately, most companies do go through this as a public company. So we just have to sort of ride it out. Now, I will tell you this community of people, our team is long, the board is long.

Why? This is a massive opportunity. So you've won local awards and probably nationally as well, since Glassdoor is a big online phenomenon for the quality of your culture to you in the workplace. Give a one-minute culture course to aspiring entrepreneurs about how to do culture right at a company. So I would say culture at a company, I feel like, is like when my kids are now 17 and 15, but when they were younger, two years old, you go to the bowling alley,

you push the button and the bumpers come up, and it's a rager. Everybody has a great time, because there's no gutter balls. And so I would argue the culture at the company or at any company is kind of like the bumpers. You won't always get a strike, but it prevents the gutter balls.

And I feel like that is huge in a business like to you. So you have to own it, and you have to focus on it, and it has to be intentional. It can't just, you can't just let it be. So I spend a lot of time on our culture. We have nine guiding principles, You know, when you establish them and you sort of frame them out over time, there are moments where you can feel a little cheesy because, you know, like one of them is don't let the skeptic win. No, it's true. Like, you know, no is easy, yes is hard. Figure out how to get the yes. Be bold and fearless. What does that mean in the context of a company? Doesn't mean go skydiving. It means figure out how to do something better instead of doing it the way that I did it four years ago, sort of every day. And so today, to you, I'm pretty obsessed with not just ensuring the culture,

but really demoting the authority within the company as far down as we can to make high-quality decisions. And if we don't do that, I worry that over time, the risk tolerance that built to you will decline. And so pretty focused on that right now. It's just making sure people have clarity of role and clarity of decision-making. I think you were impressed by the size of our gathering today.

Yeah, it's awesome, by the way. And I am, too. It gets bigger every year, and I love it. I'm impressed by the size of the number of employees that you're taking to Las Vegas later this month. We have a company meeting, annual company meeting. We have two big tent pole events. I would love to argue that they're both about shareholder value. The company meeting is definitively about shareholder value.

The other one, Halloween, you know, one of our guiding principles is have fun. Halloween is just fun, and it's great. The company meeting, we bring the employees together, and it really is a day and a half truly focused on the mission of the company. And, you know, from a hiring standpoint, there's no question that the mission over indexes, we've done a ton of regressions over the years to figure out what matters to our employee base. And the mission, it's so clear that it's mission and then everything else, and it's a long list. And so we do bring the employees together to talk about both what's new and thinking about the future

and to galvanize everybody to sort of eliminate the back row in higher education. It moves every year. This year, it happens to be in Vegas last year. It was in New Orleans. A year before it was in Long Beach, you know, it does move. So next week is like a very large wedding for me. I see a red number getting near flashing. Chip, let's end the way we like to end this time of year. So this time of year is the graduation time of year.

And I think we all can appreciate the moving commencement speeches that kids get exposed to. Chip, with 45 seconds or so wind up the clock, would you be willing to share what you might have said would say to graduates of all schools right now this time of year. So I was, I met an individual when I was outboating one time who was a former funeral director. And he, he's a true story. And he said to me, you know, he struck me as a really nice fellow and I was talking to him.

And he said to me, every day is a holiday, every meal's a feast. And I said, what? And he said, every day is a holiday, every meal is a feast. And I looked at him and I thought, wow, that's amazing. And he said, you know, I had a massive heart attack and I woke up after 20 years of running funeral parlor like a great A, you know what. I woke up in the hospital and all I could do was count the ceiling tiles and he looks at me and says don't wait till your countless ceiling tiles to process that statement. And from that point on I tried to

make it my personal sort of metaphor, my personal tagline. Every day is a holiday, every meal's a feast. If you can actually process it every day, it's hard because you wake up and you might spill coffee on yourself or you might be upset about something or having a stressful day. But if you could actually process every day's a holiday, Every meal is a feast. You're better. Work is better and life is better. That's going to do it for this week's edition of Motley Full Money. Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening. We'll see you next week.