Why Piper Sandler Downgrades 2U: Elevated Downside Risk Among Other Factors

There is downside risk to 2U Inc’s TWOU stock from the regulatory overhang and various headwinds facing the industry, according to Piper Sandler.

The 2U Analyst: Arvind Ramnan downgraded the rating for 2U from Neutral to Underweight, while reducing the price target from $10 to $9.

The 2U Thesis: There is “increased regulatory risk related to revenue sharing arrangements, University partners looking to in-source online program management, and potential pressure from digital learning fatigue and return to in-person education,” all of which could adversely impact the company, Ramnan said in the downgrade note.

2U could experience improved profitability from the EdX acquisition significantly lowering its customer acquisition cost, the analyst mentioned. The company could become “an attractive acquisition target,” he added.

“However, in our view the regulatory scrutiny risks are material, thereby making it challenging for us to be constructive on 2U,” Ramnan said.

TWOU Price Action: Shares of 2U had declined by 13.68% to $9.15 at the time of publication Wednesday.