The online learning marketplace is estimated to be approximately $42 billion in 2020 and expected to grow at a compound annual growth rate of 35-40% through 2024. The widespread adoption of this innovative approach to education has been borne by the traditional mother of invention: necessity.
While the coronavirus pandemic has not single-handedly ushered in the age of remote learning, it has greatly accelerated a trend that has been in place since services like the YouTube launched Khan Academy in 2008. The Harvard and MIT collaboration EdX began in 2012 by offering a single MIT sponsored course “circuits and electrics.” The Massive Open Online Course (MOOC) provider currently offers, through 140 institutions ranging from corporations to academic institutions, Professional Certificate courses as well as “MicroBachelors” and complete graduate degree programs.
As the non-profit space began to proliferate in the early 2010s, so did the for-profit space with companies like Canvas (2008), Udemy (2010), and Coursera (2012). As students and parents brace for what looks to be a very different back to school event in the coming months, investors will be evaluating opportunities across the digital education landscape as well as supporting infrastructure.
At its most basic core, learning and education are processes that have not changed literally since the dawn of humankind. Something is discovered or realized by an individual or group of people, determined to be useful knowledge and passed on to others.
What has changed drastically over time is how and to whom that knowledge has been shared. In terms of the technology behind how we have passed down knowledge through the generations below are some key innovations that, by today’s standards, seem innocuous yet for the time represented cutting edge technology:
- Slate Tablet - In use for at least half a millennia and in the early 1800s went from a student handheld device to an educator utilized wall-mounted collection of slates and over time became what we have come to know today as the chalkboard.
- Movable Type Printing Press - Johannes Gutenberg is credited for introducing the Western world to movable type printing. While he was about 450 or so years behind China’s Bi Sheng, Gutenberg did make an important shift from using wood or clay to using metal as the typesetting material as well as developing inks with better metal adhesion characteristics.
- Mimeograph - Many readers may still have memories of receiving let's say, fragrant, mimeographed tests and homework assignments (we know we do) which utilized a stencil cut membrane and a pungent oil-based ink. So-called "dittos" were the carbon paper replacement and precursor to "Xeroxed" pages which have been available since the early 1970s.
- Overhead Projector - another staple of our and previous generations’ secondary and post-secondary learning experience(s). Whether with single cellophane sheets or in roll form, teachers had been moving lessons along before students could finish transcribing notes for decades until the introduction of and widespread use of the latest technological enhancement to the learning process - the computer.
The 1 Megahertz, less than 100 Kilobyte RAM, cassette tape storage data device equipped Commodore Pet computers that started appearing one at a time in classrooms in the early 1980’s bear only a vague resemblance to the 4.5 Gigahertz, 16 Gigabyte RAM, 512 Gigabyte SSD, 4K touchscreen, 720p webcam, Bluetooth and Wifi equipped laptops that students of all ages are now bringing to class.
While computer hardware and communication infrastructure are light-years away (literally in the case of copper vs. optic fibre) from what they were in our college days, it should be noted that many of the advancements have to do with advancements in software (i.e. people’s vision of how to leverage the platform and shape the educational experience). While even the simple slate board managed to evolve into a more usable form (larger writing surface, multiple boards on rollers) there are still only so many ways to use that platform.
While simple tools have an evolutionary limit, it seems more and more evident that it will be many generations before the computer and its application(s) will plateau.
The MOOCs mentioned earlier are for the most part the providers of platforms that are purpose-built to facilitate remote learning, including host group broadcast (pre-recorded and real-time), chat, email, and some file-sharing functions. What has been happening in schools (elementary through high school) over the past three to four months has generally not involved these platforms but instead has been a best efforts attempt to recreate the classroom setting as quickly and inexpensively as possible.
This has meant that much like corporations, schools have had to extend their networks beyond the tightly managed environments in which they had been operating for years. While teachers are accustomed to remotely monitoring students' laptops and school IT departments are ever vigilant when it comes to content filtering, firewall breaches and rogue video game and chat installations, the new normal offers none of those frameworks. Students are not only using school supplied devices (assuming their school provides them) but also have access to personal laptops, tablets, and phones. This has the potential to create a less-than-ideal environment in which to learn.
In as much as platforms (in no particular order) like Microsoft’s (MSFT) Teams platform, Alphabet’s (GOOGL) Google Meet, Citrix’s (CTXS) GoToMeeting, Slack (WORK), Cisco System’s (CSCO) Webex, Discord and of course Zoom Video Communications (ZM) have presented a number of different user experiences, the one thing they all share is the underlying infrastructure of the internet.
Yes, all those transatlantic cables, tier one providers, switches, hubs, traffic shapers, coaxial, ethernet, and optic fibre networks down to last mile connections and home modems and wireless access points work together to deliver these connections. As it becomes more clear that schools from local community colleges to Ivy League Universities will be transitioning to remote learning environments, expect the current alphabet soup of providers and platforms to begin to become less, uhhh, soupy.
Indeed, as things are heating up in the remote learning space, Apple recently announced it will be shutting down its iTunes University platform, expanding its offering beyond simple content delivery into platforms like "Classroom" and "Schoolwork" and "Apple School Manager" offering IT admins remote network and device management tools.
If investors are looking to capitalize on the acceleration of the remote learning or “work from home” trend there are a number of names that have exposure to this trend not only on the software and services side but also on the hardware side as schools and households look beyond tablets and other ultraportables to more powerful and robust devices.
Expect bandwidth demand to increase as households now have multiple video streams to deal with as parents and kids work and study from home. Examples of those platforms include McGraw Hill Education that is owned by Apollo Global Management (APO), Chegg (CHGG), and Pearson plc (PSO). We would suspect the surge in demand is likely to lead to other digital learning platforms, the likes of which include Course Hero and d’Vinci, to consider becoming newly public companies in the coming quarters.
That incremental demand for work and education related bandwidth comes on top of our increasingly pervasive digital lifestyle that is fostering demand for streaming services from Walt Disney (DIS) controlled Hulu, Netflix (NFLX), Roku (ROKU), Spotify (SPOT), and explosive gaming adoption impacting companies like Activision (ATVI), Electronic Arts (EA), and Take-Two (TTWO).
Once providers like Verizon Communications (VZ), AT&T (T) and Comcast Corp (CMCSA) have signed up households for higher bandwidth plans, they will actually have to deliver that extra bandwidth. This brings us to the providers of infrastructure goods and services. While platform providers and device manufacturers have been seeing and will continue to see increased sales, this growth is expected to last for what essentially will be a refresh cycle. Infrastructure upgrades are the tail of an equity growth dog that will be chased indefinitely.
Disclosures
- Cisco Systems (CSCO) is a constituent in the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
- AT&T (T), Microsoft (MSFT), Verizon (VZ) are constituents in the Tematica Research's Thematic Dividend All-Stars Index.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
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Lenore Elle Hawkins
Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.
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Mark Abssy
Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.
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