Grand Canyon Education's (NASDAQ:LOPE) Q1: Beats On Revenue

Petr Huřťák /
2024/05/07 4:39 pm EDT

Higher education company Grand Canyon Education (NASDAQ:LOPE) reported results ahead of analysts' expectations in Q1 CY2024, with revenue up 9.8% year on year to $274.7 million. The company expects next quarter's revenue to be around $223 million, in line with analysts' estimates. It made a GAAP profit of $2.29 per share, improving from its profit of $1.94 per share in the same quarter last year.

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Grand Canyon Education (LOPE) Q1 CY2024 Highlights:

  • Revenue: $274.7 million vs analyst estimates of $272.4 million (small beat)
  • EPS: $2.29 vs analyst estimates of $2.15 (6.5% beat)
  • Revenue Guidance for Q2 CY2024 is $223 million at the midpoint, roughly in line with what analysts were expecting
  • The company slightly raised its revenue guidance for the full year of $1.03 billion at the midpoint (also raised full year EPS guidance)
  • Gross Margin (GAAP): 55.6%, in line with the same quarter last year
  • Free Cash Flow of $75.98 million, down 28.3% from the previous quarter
  • Students: 116,952
  • Market Capitalization: $4.12 billion

Founded in 1949, Grand Canyon Education (NASDAQ:LOPE) is an educational services provider known for its operation at Grand Canyon University.

Education Services

A 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 Growth

A company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Grand Canyon Education's annualized revenue growth rate of 5.1% over the last five years was weak for a consumer discretionary business. Grand Canyon Education Total RevenueWithin consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Grand Canyon Education's annualized revenue growth of 4.4% over the last two years aligns with its five-year revenue growth, suggesting the company's demand has been stable.

We can dig even further into the company's revenue dynamics by analyzing its number of students, which reached 116,952 in the latest quarter. Over the last two years, Grand Canyon Education's students averaged 1.9% year-on-year growth. Because this number is lower than its revenue growth during the same period, we can see the company's monetization of its consumers has risen. Grand Canyon Education Students

This quarter, Grand Canyon Education reported solid year-on-year revenue growth of 9.8%, and its $274.7 million of revenue outperformed Wall Street's estimates by 0.8%. The company is guiding for revenue to rise 5.9% year on year to $223 million next quarter, in line with the 5.4% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 6.6% over the next 12 months, a deceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Grand Canyon Education has shown strong cash profitability, giving it an edge over its competitors and the option to reinvest or return capital to investors while keeping cash on hand for emergencies. The company's free cash flow margin has averaged 20.9%, quite impressive for a consumer discretionary business.

Grand Canyon Education Free Cash Flow Margin

Grand Canyon Education's free cash flow came in at $75.98 million in Q1, equivalent to a 27.7% margin and up 39.6% year on year. Over the next year, analysts' consensus estimates show they're expecting Grand Canyon Education's LTM free cash flow margin of 22.4% to remain the same.

Key Takeaways from Grand Canyon Education's Q1 Results

We were impressed by Grand Canyon Education's optimistic earnings forecast for next quarter, which beat analysts' expectations. On the other hand, number of students unfortunately missed this quarter and full-year earnings guidance missed Wall Street's estimates. Zooming out, we think this was a mixed, quarter. The stock is flat after reporting and currently trades at $139.78 per share.

So should you invest in Grand Canyon Education right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.