1. Finance & Investment Club Consumer Sector 2 SA: Michael Minarczyk Fall 2014 Education: For-Profit Universities

2. 2 2 Agenda Industry Breakdown and StatisticsTrendsRisks/ThreatsFinancialsRecommendation

3. 3 3 Industry Definition  This industry consists of colleges and universities that offer higher education services for profit. They offer part-time and full-time undergraduate degrees, as well as masters and doctorate programs to a wide variety of consumers. The schools offer their services through a number of different methods including physical campuses, a combination of training facilities and correspondence, and online learning environments. Major Players Apollo Education Group NASDAQ: APOL DeVry University NYSE: DV Capella Education Co. NASDAQ: CPLA Strayer Education Inc. NASDAQ: STRA Career Education Corp. NASDAQ: CECO Bridgepoint Education NYSE: BPI

4. 4 4 Revenue Generation Model Collect Tuition Provide Courses and Degree Programs Offer Miscellaneous Services Refine and Improve Business Model Phase 2 Marketing/ Attracting Students Admission Process Enroll Students Phase 1

5. 5 5 Industry Breakdown  Although Apollo Education Group and DeVry University are the major publically traded players in the industry, there is a significant market share ripe for the taking –Presents a possible opportunity for M&A activity  Laureate Education, a private company, is the largest revenue earner in the industry IBISWorld

6. 6 6 Product Segmentation Full-Time and Part-Time undergrad courses are the most common programs offered by companies in the industry and are a focus of the business platform The target demographic for this industry is individuals after the typical college graduation age (22), which accounts for 83% of revenue

7. 7 7 Porters Five Forces Competitive Rivalry High Barriers to Entry High Buyer Power Low Threat of Substitution Medium Supplier Power Low

8. 8 8 Inflection Point  Education is important : 8 of 10 Americans consider this issue as extremely important  High School Graduation Rate : Risen from 74% in 2007 to 81% in 2012 and this number is growing –These students need higher educational services  Education is Expensive: USA ranks 4 th globally in cost per student and the average debt per graduate of a 4 year college is $30,000  Education Job Prep: 1/3 of college grads feel they are unprepared for employment  Benefits of Personalized Education : Individuals have different learning styles and online education allows students to learn on their own terms and at low cost The Industry is at an Inflection Point. The education industry of the future, like many other industries in the economy will look very different than it has in the past.

9. 9 9 Trend #1 Emergence of Online Education Market Inversion Expansion to New Markets

10. 10 Emergence of Online Education  Removal of the 50/50 law  Affordability and accessibility increases margins  Acceptance of online education universally (MIT, Harvard, and Stanford)  Disruptive technology revolutionizes industries CAGR -3.71% The number of online users is growing annually and this growth leads to higher revenues R² of.843 IBISWorld, BU

11. 11 The Importance of the Long Tail Learning Solutions Magazine

12. 12 Trend #2 Emergence of Online Education Market Inversion Expansion to New Markets

13. 13 Market Inversion Yahoo Finance

14. 14 Market Inversion From 2007 to 2009, the average CAGR for revenues of these 4 companies was 18.84%. Education’s stability and self-advancement capabilities make it a profitable industry during recessions Amigobulls.com

15. 15 Market Inversion Hyde Park Capital

16. 16 Trend #3 Emergence of Online Education Market Inversion Expansion to New Markets

17. 17 Online Education Is Global KPCB Internet Trends 2014

18. 18 Global Education  International operations account for a small portion of revenues currently –6.8% for Apollo and 12.3% for DeVry  Rising Middle Class, Growing College Participation, Young Population –Especially in Asia and Latin America  Public Universities are often free but only accept a handful of highly talented students –In Brazil, only 428 out 100,000 citizens are college educated (2009 UNESCO data)  Less regulation and oversight –Also, less funding and financial aid programs as here in the United States  Laureate Education, a private company, has been extremely profitable internationally CNBC

19. 19 Global Education 2011201220132014CAGR APOL Domestic 4,437,0793,923,6493,360,3162,686,571 -22.19% International273,970269,541275,608337,60711.01% DV Domestic1,913,3281,721,2801,548,9751,457,430-12.72% International269,043350,503415,400465,94231.60% International education is a growing trend that provides for-profit companies with an opportunity to expand and tap into new revenue markets. Tying this together with the online education trend, it will be relatively inexpensive to duplicate established programs in these new countries Company 10K’s

20. 20 Risks and Threats  Title IV Programs and the 90/10 Rule –If revenues from the title IV programs exceed 90% of total revenues, they will lose access to the funding  Rising Student Default Rates –If student default rates continue to rise, government funding may be reduced  Increased Regulation –Marketing and other areas of business are being watched by government officials  Private Education and University’s going online –As top ranked schools go online, for-profit schools may lose market share

21. 21 Key Financials TickerMkt Cap (USD)P/EEPS EVROEROAGMP/BNet Sales Minimum368.686673212.28630963-2.73105.9986732-48.218716-26.76551444.492641.043653419.51 Median856.664171117.681177151.615761.048671114.6259716.131177552.634572.373533800.921 Maximum3195.0054437.072047212.892657.02051121.46670314.36701364.9359811.08463044.978 Average1484.29334821.463886391.01831160.0476813.96936251.48314252.654313.799671242.481 APOL 3195.0054412.286309631.872413.2084418.2183766.87269954.541432.7165983044.978 DV 3126.92551117.05724712.512657.02051111.0335667.76674646.686682.0304681934.503 STRA 861.472972417.681177151.36830.533972421.4667035.38965644.4926411.0846454.055 CECO 368.6866732 N/A-2.73105.9986732-48.218716-26.76551464.935981.043653946.943 CPLA 851.855369823.222650882.89691.563369819.47670714.36701354.273164.561122419.51 BPI 501.814120937.072047210.21261.96112091.8395391.26825250.995981.361576654.899 Bloomberg

22. 22 Industry Index Yahoo Finance

23. 23 Industry Prediction For Profit Education Industry Rating: Online Education, Market Inversion, and Expansion give the industry a positive forecast. However, the education industry typically is a slower mover compared to other industries. With this in mind, we put a BUY recommendation on the industry with a TWO-YEAR horizon HOLD Stock to Watch:

24. 24 BACK UP SLIDES

25. 25 Back-Up Trend #1

26. 26 Back Up Slide

27. 27 Global Education The Economist

28. 28 Industry Statistics Suppliers Book Publishing and Wholesalers Computer Manufacturing IT Consulting Office Suppliers Buyers Consumers Professional, Science, and Technical Services Healthcare and Social Assistance Revenue growth is expected to be slightly volatile as the industry solidifies itself within the overall education sector of the economy Supply Chain in this industry is very similar for all educational services institutions including private, public, and non-profit schools IBIS World