Would Craig Barrett buy K12 Inc. stock (or enroll his child in one of their virtual schools)?


by David Safier

As I posted Wednesday, Whitney Tilson, who runs Kase Capital hedge fund, is shorting K12 Inc. On Sunday, he explained why.

Before I go into Tilson's reasons for the short, I feel the need, once again, to ask for Craig Barrett's views on this. Barrett, Gov. Brewer's spokesman on education, president and chairman of BASIS charter schools, one of the prime movers behind the Common Core and rich, savvy ex-CEO of Intel, is also one of 10 members of the K12 Inc. Board. While he talks in public and to the press regularly, he has never, so far as I know, talked about K12 Inc. or its Arizona Virtual Academy for the record. Yet K12 Inc.'s Arizona school alone enrolls over 4,000 students, which is similar to the number of students enrolled in all Arizona BASIS charters combined — and that's only in Arizona. Certainly the subject deserves a mention from a high profile educational spokesman like Barrett.

Tilson goes into his reasons for shorting K12 Inc. at some length. They are based both on recent earnings and what he sees as an untenable educational model. He notes that "year-over-year revenue growth – critical for a stock trading at nearly 50x earnings – has been falling sharply over the past two years, and is projected to fall further in the next year (to 16%)."

He says that, while there are a small number of students who are well suited to the virtual school model, K12 Inc. needs lots of students, which means aggressive recruiting for students, most of whom are a bad fit. "Since going public in late 2007, numerous former employees have told me that K12 has adopted a growth-at-any cost mentality in order to support its richly priced stock."

Most cynically, K12 Inc. goes after at risk students who are probably the least likely group to be self motivated enough to work on their own. He quotes a Columbia University Teachers College prof: "K12’s phone banks have figured out a way to target dropouts and special ed kids. They will sign up anyone – as long as that warm body signs in periodically, K12 can draw enrollment money from the district."

K12 Inc. spends far less on teacher and administrative salaries per student than brick-and-mortar schools. "In light of such low spending, it’s not surprising that many teachers report excessive class sizes and feeling harried, overworked and unsupported."

And of course, all these factors lead to what Tilson calls "horrific educational outcomes."

The condemnations continue. Tilson and his people are fierce, unrelenting researchers, and they've put together a thorough piece condemning K12 Inc.'s practices and questioning the viability of its educational and financial models. Tilson says he's a supporter of charter schools and other "new models of education, whether for profit or nonprofit, as long as they work for kids." He just thinks K12 Inc. doesn't work.

Mr. Barrett, any thoughts you'd like to share? Journalists, do any of you want to ask Barrett to share his thoughts?

UPDATE: K12 Inc. CEO Ron Packard "unloaded 18,000 shares of K12 stock in a transaction that occurred on Wednesday, September 18th." That still leaves him with 219,709 shares, so it's not like he's dumping his holdings. The stock is reasonably high right now, so maybe he's just cashing in — though it's lost some value over the past 10 days. Maybe Packard agrees with Tilson that the stock is about to fall and is planning to sell it off bit by bit off before it loses value. Lots of analysts, unlike Tilson, are giving it an "outperform" and "Buy" rating. But that's what makes horse racing and stock trading.


  1. So the business model needs year over year growth to sustain its stock price? Then it makes sense that a few years ago then-Gov. Jeb Bush proposed a law requiring all high school students to take at least one online course before graduating. That would be a huge boost to an online school. Floridians weren’t having it and it went down.

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