One of America's most successful purveyors of online education is expanding abroad. But it's doing it by building brick-and-mortar campuses.
Apollo Group, owner of the University of Phoenix for-profit colleges, plans to build campuses in Latin America, China, India, and elsewhere. But its online education branch, which the company says is its fastest-growing unit, will continue to focus on the U.S. market, despite preparations for an initial public offering in September.
According to Trace Urdan, e-learning analyst for WR Hambrecht & Company, Apollo Group plans to issue stock next month for its Web college (proposed symbol, UOPX), which should be noticed given the revenue the school generates.
"I'm projecting Apollo Group will have $808.8 million in total revenues in calendar year 2001, and its online business will contribute $152.8 million," Mr. Urdan says.
A DIFFERENCE OF OPINION
University of Phoenix Online has 13,500 enrolled students, both undergraduate and graduate, up from 4,493 in the quarter ended November 1997. Apollo claims that it's the fastest-growing part of the company.
Such a claim is leaving some analysts wondering why Apollo International won't push online education overseas the way Apollo Group does here. The company says it doesn't think the markets are ready, but analysts disagree. They note Los Angeles-based Quisic, formerly University Access, is going abroad with an ambitious venture.
Privately held Quisic, which counts FT Knowledge, the online business education unit of British media giant Pearson (OTC: PRNSY), as an investor, just announced it would provide content and courseware for E-ducavia, a $100 million venture between IBM Spain, Cisco Systems Spain SA, and Telefonica Media for an online Spanish- and Portuguese-language business school.
Quisic CEO Alec Hudnut says Latin America is a natural market. He says a "reasonable estimate" for the region's business education market, off- and online, is $6 billion to $7 billion, out of a $40 billion worldwide market.
STAY WITH WHAT YOU KNOW
Apollo, though, will keep online education at arm's length abroad as it sticks to what has served it so well here: brick-and-mortar campuses. The economics remain fuzzy, but the concept is solid, given a shortage of colleges abroad and the value of U.S. degrees overseas, analysts say.
"We have the world's most renowned postsecondary education system. There are many who think that can be our next great export. I don't mean to hype it, but it's a very practical thing," says Greg Cappelli, head of Credit Suisse First Boston's Global Services Group.
Jorge Klor de Alva, the Apollo executive in charge of the overseas expansion, says pragmatism will guide strategy. Take Germany. "About 40 percent of college students there drop out, and there are very few second-chance institutions," Mr. Klor de Alva says. "Also, there is a high degree of lifelong learning; about 10,000 Germans enrolled in some form of continuing education last year."
Apollo Group is going overseas cautiously, using Apollo International, formed in 1998, to test the waters.
Apollo Group -- worth more than $2 billion -- holds only a 2.6 percent stake in Apollo International. The company has $40 million in private funds. Investors include Chase Capital Partners, Kaplan Ventures, and a venture fund controlled by Apollo Group founder John G. Sperling and his son, Peter V. Sperling. Mr. Klor de Alva also is an investor.
BUILD TO LEARN
Mr. Cappelli isn't surprised by Apollo Group's small stake. He says the company would rather invest in what it does best: opening new campuses.
"Two years ago, University of Phoenix was hardly east of the Mississippi," Mr. Cappelli says. Now, there are 85 University of Phoenix locations, a mix of campuses and so-called learning centers, in the U.S. Three more locations are slated next year for Boston, Cleveland, and St. Louis.
Apollo Group has been educating working adults for more than 25 years, most prominently through its University of Phoenix subsidiary. In May, it enrolled some 75,000 students, marking a 22 percent year-over-year rise. Apollo Group's net income for the three months ended in May rose 12 percent to $21.1 million from the same period last year.
NOT ALONE
Meanwhile, Apollo International's plans for overseas campuses are not going uncontested.
Baltimore-based Sylvan Learning Systems paid $51 million in April 1999 for a controlling interest in the 7,000-student European University of Madrid. That added to company holdings in Spain such as Wall Street Institute English-language schools and Sylvan Learning Centers.
Sylvan plans more such acquisitions. "If I had to guess where they'll acquire the two universities they said they will, I'd have to say Mexico and Brazil," says WR Hambrecht's Mr. Urdan.
Apollo International's Mr. Klor de Alva also has his eye on Latin America. Deals in Mexico, Brazil, and other countries in the region are likely within a year, he says.
Deals there would be big given the company's current holdings: a single campus in the Netherlands with only 50 graduate students. Mr. Klor de Alva says another campus will open in Dusseldorf, Germany, next month, and one to two campuses a year will open in Germany for the foreseeable future. But he does not discuss enrollment goals.
In contrast, Mr. Klor de Alva talks big when he addresses the subject of Latin America. "If you look at Brazil, the current higher-education enrollment is about 2.1 million, but it's expected to be 5.1 million by 2008," he says. "Mexico now has about 1.8 million higher-education students, but by 2010 it should have about 4 million."
Analysts have confidence in the 52-year-old Mr. Klor de Alva, formerly president of the University of Phoenix system. They like that he comes across as an avid capitalist -- a surprise to those who happen to know he was a classmate of Black Panther leader Huey Newton when the two pursued doctorate degrees in a "History of Consciousness" program at the University of California at Santa Cruz. Mr. Klor de Alva then went on to teach history and anthropology at UC Berkeley before joining the University of Phoenix.
Still, analysts think Mr. Klor de Alva's decision to hold off on international online programs until its brick-and-mortar schools are established is risky.
"Ultimately, the promise [abroad] is in leveraging online education more meaningfully than actual physical campuses," says WR Hambrecht's Mr. Urdan.
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