American Public Education, Inc. is a provider of exclusively online postsecondary education with emphasis on serving the needs of the military and public service communities. The company operates through two universities, American Military University, or AMU, and American Public University, or APU, which together constitute the American Public University System.
Summary of Video Content
History
The company was founded in 1991 under the name of American Military University by a retired Marine officer. At first, the university only offered graduate level programs specializing in military studies curriculum. By 1996, it began offering undergraduate programs but still primarily to military students. In 2002, the company went through a reorganization and began serving the general public. In November 2007, it went public.
Competitive Strengths
One of the main competitive strengths that the company possesses is its affordable tuition which is one of the lowest in the industry. The reason why it can charge less than its peers is because of its exclusive online education model and lowest student acquisition costs.
The company’s business has a flexible cost basis and is scalable.
Performance
From 2007 to 2009, total revenues increased from $69.1 million to $149 million, which is a 116 percent increase, net income increased from $8.8 million to $23.9 million, which is a 172 percent increase, operating margins increased from 25.4 to 30.3 percent, and return on equity increased from 26.1 to 29.2 percent.
Future
Currently, the for-profit education industry is under the government’s scrutiny. Any new regulation is likely to affect the company in a negative way. However, when you compared it to other for-profit education companies, American Public Education is in a little different situation because it does not rely heavily on Title IV loans.
The future growth is likely to come from the continual diversification of the student base away from the military to the general public.
Disclosure: The Author does not own APEI.
Interesting video Marius. I am just curious why the discussion around many of the for profit educational institution engaging in fraudulent practices was not discussed ? APOL, APEI, DV, EDMC all have been charged of such fraudulent practices. Steve Eisman has made a very strong case for shorting against such institutions in his presentation \subprime goes to college – http://www.slideshare.net/pkedrosky/eisman-ira-sohn-conference-slides-and-speech52610
I am very much interested in knowing your thoughts on this and more importantly how do you think APEI is different from many other institutions – in what sense has APEI not engaged in similar practices since majority of the revenue > 70% comes from govt loans to students in military
Rahul
I can only discuss so much in my videos. I am aware of the issues you mentioned and I wrote about them in the following post:
http://classicvalueinvestors.com/i/index.php/2010/08/08/for-profit-colleges-do-you-go-long-or-short/#more-986
APEI is in a little different situation because of its niche but this doesn’t mean that the reform will not hurt its operations. The video about APEI is to profile the company and not necessarily to present it as an investment idea. If you are looking for my investment ideas, you need to go under the investment ideas category.
Thanks for your response and your article. This is definitely compelling. I am of the same opinion. For a value investor it is important to go beyond the numbers- as a investor it is important to stay away from business models that may very easily cross the line of being good corporate citizen in face of tempting profits – whether it be subprime lending or easy access to federal loans…
One thing that I really did not like about the APEI management 2Q disclosure is how easily then revised their estimates- It was as if they all the while knew that the model is not the best one but we are not responsible for any problems/ regulatory hurdles that may come.
Here is the excerpt for 2Q filing
American Public Education has recently observed adverse changes in our historical pattern of growth in net course registrations
from active duty military students at AMU. While the Company cannot determine all of the factors that are causing it to occur,
American Public Education believes the changes in net course registrations from active duty military students may in part be due
to increased operations activity and recent deployments across all branches of the U.S. Military, particularly the United States
Marine Corps. The Company believes that increased demands on many active duty military personnel, combined with limited
internet access associated with some deployments in Afghanistan and at sea, are likely to limit the ability of certain active duty
military students to pursue higher education in the near term. The Company cannot determine whether net course registrations
from active duty military students will return to previous expectations, grow more slowly than expected, remain flat or decline.
As a result, American Public University Systems plans to accelerate its existing strategic plan to address civilian markets through
APU, with an emphasis on public service professionals and selected groups of working adults.
American Public Education is revising guidance for the third quarter of 2010 and is returning to its prior practice of only
providing guidance for current periods. Guidance given previously for 2010 and beyond should no longer be relied upon.
American Public Education anticipates third quarter 2010 net course registrations to increase between 20% and 22%, revenue to
increase between 29% and 31%, and net income to increase between 5% and 10% over the prior year period.