U. of Phoenix Enrollment-Drop Projections Spark Stock Drop

October 15, 2010

For-profit higher education stocks plunged across the board Thursday following confirmation from the industry's biggest player that pressure from Washington and negative press would probably hurt the company's bottom line for the foreseeable future. Shares of Apollo Group, the parent company of the University of Phoenix, fell more than 23 percent to a 52-week low of $38.00 a share. Education Management Corp., owner of the Art Institutes and Argosy University, among other institutions, also fell about 23 percent, to $10.22 a share.

The tumble follows Apollo's late Wednesday release of earnings data for the fourth quarter of its 2010 fiscal year, which showed new enrollments ("starts," in industry lingo) falling 10 percent, to 92,000 students, and projected that new starts in the first quarter of 2011 could be down as much as 40 percent over a year ago. Phoenix had already announced plans to require a three-week orientation course for students entering with fewer than 24 college credits (it becomes mandatory on Nov. 1), and said that it would stop compensating recruiters in part based on the number of students they enrolled. But the projection that those and other changes would damage starts -- the major source of revenue growth for for-profit colleges -- and cut the company's profits in the short term led some analysts to downgrade their outlooks on the company and the sector. At the same time, some analysts praised Apollo officials for making changes that appear to emphasize student outcomes over the bottom line.

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