Did Bridgepoint Just Save Online and For-Profit Universities?

July 12, 2013 by Paul Ausick

education
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Two for-profit colleges both had news yesterday. Bridgepoint Education Inc. (NYSE: BPI) received its initial accreditation for a period of five years. Apollo Group Inc. (NASDAQ: APOL) was notified that it had been accredited for a period of 10 years, with a catch. We wanted to see if the news reaction implies whether the for-profit university stocks may be saving the sector after the carnage and stock price devastation that has been seen.

Apollo, which owns the University of Phoenix, was placed on “Notice” status for two years. That means that the accrediting body — The Higher Learning Commission — found that the school “is on a course of action that, if continued, could lead the institution to be out of compliance with one or more of the HLC Criteria for Accreditation of Core Components.”

Thus, for the next two years, Apollo must jump through some hoops:

[Apollo] is required to report on its progress in other areas of study not included in the Notice sanction, including retention and graduation rates, three-year cohort default rates, and credit hour policies and practices relating to learning teams.

Educational mumbo-jumbo aside, the bottom line, according to Apollo: “We believe the imposition of the sanction of Notice on the University of Phoenix could adversely impact our business.”

Bridgepoint, however, was celebrating. It’s Ashford University crowed a little, citing the letter from its accrediting body, the Western Association of Schools and Colleges:

[The accrediting] team found an institution that has been fundamentally transformed and whose culture has been changed in significant ways, including a shift from a market driven approach to an institution committed to student retention and success.

Apollo is nearly three times larger than Bridgepoint, measured by market cap, and Bridgepoint’s net income in its most recent quarter totaled about a third of Apollo’s. Does the smaller school’s achievement mean that the for-profit college sector is about to turn around, or is Apollo the bellwether?

Since Bridgepoint came public in mid-2009, it is the only school to show a gain in share price. Apollo, Career Education Corp. (NASDAQ: CECO), Corinthian Colleges Inc. (NASDAQ: COCO), Strayer Education Inc. (NASDAQ: STRA) and DeVry Inc. (NYSE: DV) have all seen share prices fall by 40% to 80%.

Perhaps Bridgepoint has established a new model for the for-profit sector, but it is one that the other institutions have had a tough time adopting. They were all built on easy federal student lending and high-powered student recruiting practices. In the three years that they have had to change their practices, it is hard to see any major improvement, at least when measured by stock price performance. Bridgepoint may well be one of a kind.