The E-Learning Growth Fallacy

Companies that have a sharp focus on the "real" market for e-learning — that is, the market for continuing education, skill-building and job retraining — will experience solid growth for at least the next three to five years. However, investors that have their money on the biggest players in the industry may be in for an unpleasant surprise.

THE HIGHER EDUCATION SHAKEOUT

Higher education commands a high price from today's consumer, but the growth continues to march on, unimpeded. However, a recent market study concluded that the analyst consensus growth targets of the top 12 e-learning players in the market simply doesn't jive with the expected number of matriculating students for online higher education. What this means is that there is bound to be a shakeout among the biggest companies in this sector. When the market realizes that the growth targets projected by these companies cannot possibly be achieved, and they discover that many stocks are overvalued by as much as 80%, there will be a mass exodus from these stocks.

Consider the top 12 players in the e-learning higher education industry. These companies, such as Apollo Group (Nasdaq: APOL), Career Education Corp. (Nasdaq: CECO), Corinthian College (Nasdaq: COCO), Strayer Education (Nasdaq: STRA), and Sylvan Learning (Nasdaq: SLVN) all provide some form of post-secondary education targeting the adult working student over the age of 24. Students can earn degrees from home without having to incur the usual expenses of relocation, housing, etc. The combined market capitalization of these top 12 companies is about $40 billion. In the first quarter of 2004, the consensus analyst five-year growth projection for the industry was an annual pace of 13.69%. So far so good.

One of the biggest players, making up more than half of the $40 billion combined market caps is Apollo Group, the company that owns a large majority of University of Phoenix Online (Nasdaq: UOPX). The Apollo Group indicates in their 10-K that, "According to the U.S. Department of Education, over 5.9 million, or 39%, of all students enrolled in higher education programs are over the age of 24. This number is projected to reach 6.6 million in 2007 and 6.9 million in 2012."

Now, if you're following all this, the D.O.E. projection calls for only 2% annualized growth over the next eight years. When you consider that University of Phoenix Online has only about 200,000 students of the 5.9 million (3.3% of the market), and the aggressiveness of the company's marketing campaign to attract degree-bound students, this is a very small number indeed. One has to step back and realize that the industry analysts' 13.69% projected industry growth is far off from the government's estimate. Who's right and who's wrong will be determined in due time. As a risk averse investor, I can assure you that my money would not be here.

DEMAND IS HIGH FOR SKILL-BUILDING

The e-learning industry is not a one-trick pony. It is made up of higher education programs that result in degrees, but also the area that includes continuing education, skill-building and job retraining. Online degree programs are not where millions of people need focus today. People want new trade skills to add to their current trade skills. They want to continually be marketable in the workplace, and this means keeping up with the trends and changes in their chosen profession. Some want to change careers, requiring more advanced learning. Some want to add to their skill sets and become more valuable in the job market. Evolution Media Group's MiracleMind answers these needs by packaging courses for continuing education, skill-building and job retraining into one convenient membership. Add to this the rising demand for relevant and unbiased information in the areas of personal growth, healthcare and social evolution, and you can begin to see the potential market demand for low-cost access to learning modules that meet very specific needs.

Evolution Media Group also believes that much of the e-learning content that is out there today is overpriced. MiracleMind aims to change the way the industry looks at e-learning. MiracleMind will bring this type of learning to the mass consumer audience, and do it at a very affordable price. Furthermore, by sharing the MiracleMind marketing budget directly with the members who promote the service by word-of-mouth, we're giving this audience exactly what it wants and needs — additional income.

The world is changing so fast that new occupation categories crop up every single year. One thing is certain, when you remove higher education from the equation, the e-learning space has tremendous room to grow. Companies in this space will be relatively safe while the larger players slug it out over market share and margins amidst a slow-growth environment in the coming eight years. While a million more potential online students may line up to pay upwards of $20,000 for high quality online degree in the coming years, word-of-mouth will drive tens of millions will invest a few hundred dollars per year for effective and efficient learning modules in a broad range of categories.