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Higher education company Strategic Education (NASDAQ:STRA) beat analysts' expectations in Q2 CY2024, with revenue up 8.5% year on year to $312.3 million. It made a non-GAAP profit of $1.33 per share, improving from its profit of $0.82 per share in the same quarter last year.
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Strategic Education (STRA) Q2 CY2024 Highlights:
- Revenue: $312.3 million vs analyst estimates of $308.1 million (1.3% beat)
- EPS (non-GAAP): $1.33 vs analyst estimates of $1.19 (12% beat)
- Gross Margin (GAAP): 47.7%, up from 43.9% in the same quarter last year
- Free Cash Flow of $13.57 million, down 80.2% from the previous quarter
- Domestic Students: 87,077 at quarter end
- Market Capitalization: $2.94 billion
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ:STRA) is a career-focused higher education provider.
Education ServicesA whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales GrowthReviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one tends to sustain growth for years. Regrettably, Strategic Education's sales grew at a weak 5.9% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Strategic Education's annualized revenue growth of 5.3% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.
This quarter, Strategic Education reported solid year-on-year revenue growth of 8.5%, and its $312.3 million of revenue outperformed Wall Street's estimates by 1.3%. Looking ahead, Wall Street expects sales to grow 5% over the next 12 months, a deceleration from this quarter.
Cash Is KingIf you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Strategic Education has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 8.2%, subpar for a consumer discretionary business.
Strategic Education's free cash flow clocked in at $13.57 million in Q2, equivalent to a 4.3% margin. This quarter's result was nice as its cash flow turned positive after being negative in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Strategic Education's cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 11.7% for the last 12 months will decrease to 10.6%.
Key Takeaways from Strategic Education's Q2 ResultsIt was good to see Strategic Education beat analysts' EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street's estimates. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The stock remained flat at $120.71 immediately following the results.
