What You Need To Know About The 2U, Inc. (NASDAQ:TWOU) Analyst Downgrade Today

The analysts covering 2U, Inc. (NASDAQ:TWOU) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. There was a fairly draconian cut to their revenue estimates, perhaps an implicit admission that previous forecasts were much too optimistic. At US$1.12, shares are up 8.7% in the past 7 days. We'd be curious to see if the downgrade is enough to reverse investor sentiment on the business.

Following the downgrade, the consensus from ten analysts covering 2U is for revenues of US$894m in 2024, implying a perceptible 3.5% decline in sales compared to the last 12 months. Prior to the latest estimates, the analysts were forecasting revenues of US$1.0b in 2024. It looks like forecasts have become a fair bit less optimistic on 2U, given the substantial drop in revenue estimates.

View our latest analysis for 2U

Another way we can view these estimates is in the context of the bigger picture, such as how the forecasts stack up against past performance, and whether forecasts are more or less bullish relative to other companies in the industry. We would highlight that sales are expected to reverse, with a forecast 2.8% annualised revenue decline to the end of 2024. That is a notable change from historical growth of 17% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 9.6% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - 2U is expected to lag the wider industry.

The Bottom Line

The most important thing to take away is that analysts cut their revenue estimates for next year. They're also anticipating slower revenue growth than the wider market. Given the stark change in sentiment, we'd understand if investors became more cautious on 2U after today.

That said, the analysts might have good reason to be negative on 2U, given dilutive stock issuance over the past year. For more information, you can click here to discover this and the 4 other risks we've identified.

Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are downgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.