In recent years, a small but fast-growing number of parents seeking alternatives to traditional schooling have fostered a new industry: virtual public schools.
These publicly financed distance-learning alternatives are essentially charter schools in cyberspace. Yet, so far, just one company is winning strong marks for capitalizing on this movement: the Herndon, Va.-based K12.
The education-software maker just went public in December. It sells online curricula and management services to 32 virtual public schools in more than a dozen states including Pennsylvania, Texas and Colorado. The bull case for K12 is in its growth prospects, as more parents look beyond the traditional public schools and the Internet becomes an increasingly accepted learning tool. Over the past four years, average enrollments at K12’s client schools more than doubled to 27,000 students from 11,000, boosting K12’s revenue 97% to $140.6 million.
This week, three investment banks, which also helped underwrite K12’s IPO, issued Buy or Outperform ratings on the stock with price targets of $26 to $27, compared with Wednesday’s close of $24. To date the shares are up 33% from the company’s initial offering price of $18, although they’ve edged down from their first trading day’s close.
K12 charges per-student fees for its curriculum and management services, including the hiring and training of teachers. The virtual schools, which are regulated by their states, are free for eligible parents. K12 supplies each student with a computer, Internet connection and all the curriculum materials. Chief Executive Ron Packard says he was inspired to start K12 after growing dissatisfied with the math lessons his daughter was getting in first grade. He says he went online hoping to buy “what the world’s best schools were teaching in math,” but couldn’t find such a product.
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