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Tuesday 19

September, 2017 9:36 PM



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3P Learning simplifying for next expansion

3P Learning simplifying for next expansion

By Tony Featherstone 04.09.2017


I heard a troubling statistic last night at a university function. The current teaching model of lectures and tutorials – which hasn’t changed in decades – suits only a third of students, according to the university’s research. New models are needed.

Having lectured at university for eight years, I saw the problems of outdated teaching methods first-hand. The idea of pushing information at students in a digital world makes less sense. Younger students want to pull information from online sources as needed.

Like many teachers, I was frustrated that fewer students turned up to lectures and tutorials each week and even made tutorials compulsory to boost attendance! Course feedback was good, but busy students preferred to learn whenever, and wherever, via the internet.

The other problem with teaching is inconsistency. Consider mathematics, which relies on cumulative knowledge building. It only takes one bad teacher to dent a student’s interest and understanding of mathematics. Online learning, for all its challenges, is at least standardised. 

A bigger push towards online learning is inevitable. As understanding of its techniques grows, and software improves, online education will increasingly supplement human-based teaching and, in some fields, overtake it. 

This brings me to 3P Learning, a global provider of online education for school children through the Mathletics, Reading Eggs, Spellodrome and IntoScience teaching programs. 3P Learning also owns and hosts the World Education Games, a surprisingly large global online education event.

3P Learning listed on ASX in 2014 through a $282-million initial public offering (IPO). The float was among the most sought-after that year; fund managers like the company’s position in online education, high margins, recurring income and global prospects. 

Shares in 3P Learning, issued at $2.50, mostly traded above their issue price in the year after listing. Then reality struck. The shares plunged to 63 cents in June 2016 after profit downgrades, management changes and fears that the company’s US expansion was struggling.

Online education is a terrific business when it works. A product such as Mathletics can be sold many times worldwide without much additional investment. Like all good software, the products have high margins and recurring revenue through subscription licence fees.
 
But the education sector is notoriously slow to deal with. Sales often take longer than expected to close because conservative schools take time to make decisions. The US market has been tough for 3P Learning, given the nuances of its education sector.

For all the challenges, 3P Learning has a terrific product suite. I’m sure many parents reading this column have watched their children use Mathletics for homework or subscribed to Reading Eggs to help with learning basic reading skills before school.

The propensity of parents to spend more on their children’s education is a tailwind for 3P Learning. We have all seen parents who plough money into extra tutoring, afterschool sporting and arts activities, private school fees and online learning programs. 

The education push starts earlier these days, as some children are loaded up with online learning and other educational activities well before school begins. Right or wrong, the extra investment in education, beyond traditional schools, is a good trend for 3P Learning.

Simplified strategy

I like 3P Learning’s strategy to simplify and strengthen its product portfolio. The company is returning to it numeracy and literacy roots and ceasing further investment in science programs. Mathletics is being revitalised and a new literacy brand, Readiwriter, is being built.

The sales and marketing model is being strengthened through greater focus on digital and telesales approaches. Drawing on its successful Canadian model, 3P Learning is using lower-cost telesales in the US and automating more of its sales. A stronger sales culture, based on pay-for-performance that focuses more on variable than fixed costs, is being developed.

The company is standardising its global operating model to provide stronger foundations to scale the products. Everything from banking to sales, customer services, shared services support and business systems is being standardised. Although it sounds trivial, poor back-office processes have been the deathknell for many emerging companies that expand offshore.

Taken together, these changes suggest a company that is focusing more on its core strengths, vastly upgrading its sales capacity and creating the foundations to move faster in more markets. That should lead to more reliable, recurring income with higher margins.

3P Learning always had great educational skills. I once interviewed the company’s former management in its North Sydney office and was blown away by the creativity. The company seemed like a mini-Pixar in online-learning animation.

Like so many emerging companies, 3P Learning fell short on other attributes needed to build big businesses: a sophisticated, efficient sales model; robust back-office systems; and management that could take a creative business to the next level. 

3P Learning has a lot of work ahead but is heading in the right direction. Underlying after-tax net profit for FY17 rose $1 million to $6.3 million. Revenue growth in the Americas business – the key to the company’s long-term fortunes – impressed at 31 per cent.

The hard work to build a more efficient, standardised global sales model is starting to pay off. The share price has rallied from a low of 63 cents to 98 cents in the past year. Those who bought the IPO are still well down on their investment, but those who bought in at the lows have enjoyed strong gains in the past 12 months. 

Keep an eye of 3P Learning’s share price chart. The stock appears to be building a classic accumulation (sideways) pattern as the new strategy is implemented. Chartists will look for sustained breakout through $1.20 that takes the stock higher. 

3P Learning can continue to recover and build on recent share price gains, slowly, over the next three years. The stock experienced investors who are comfortable with the risks of investing in micro-caps. 

Chart 1: 3P Learning
Source: The Bull

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• Tony Featherstone is a former managing editor of BRW and Shares magazines. The information in this article should not be considered personal advice. The article has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article you should consider its appropriateness regarding your objectives, financial situation and needs. Do further research of your own or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at August 31, 2017.



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