Get sick, get well
Hang around a ink well
Ring bell, hard to tell
If anything is goin' to sell
-- Bob Dylan

Wednesday, December 14, 2011

K-12 Inc. stock price plummets. Should we care?

Uh oh! The speculators are speculatin' and the short-sellers are short selling. K-12 Inc. stock is in free-fall and Andy Rotherham at Eduwonk (who denies holding any shares) sound downright panicky and hedgey. While he is not currently contracting with K-12, his Bellweather consulting company has done work with them in the past. The stock market is to edu-profiteers like Rotherham, what standardized test scores are to DOE bureaucrats and big-city mayors, indicators of their future employment and marketability.

The trouble began Monday when a New York Times story by Stephanie Saul, "Profits and Questions at Online Charter Schools", called out K-12, not on its stock prices, but on how badly its "portfolio schools" like Agora Cyber Charter School are doing. 

Agora is one of the largest in a portfolio of similar public schools across the country run by K12. Eight other for-profit companies also run online public elementary and high schools, enrolling about 39,000 of the more than 200,000 full-time cyberpupils in the United States. The pupils work from their homes and often never even meet their teacher. There is no cafeteria, no gym and no playground. Teachers communicate with students by phone or in simulated classrooms on the Web. 

Problem is, nearly 60 percent of Agora's students are behind grade level in math. Nearly 50 percent trail in reading. A third do not graduate on time. And hundreds of children, from kindergartners to seniors, withdraw within months after they enroll. In other words, if K-12,Inc. was to be evaluated under NCLB or Race To The Top standards, they not only would be failing to make AYP, they would be marked for closure and replaced by -- well, er, umm, charter schools. "Kids mean money," writes Saul.
Agora is expecting income of $72 million this school year, accounting for more than 10 percent of the total anticipated revenues of K12, the biggest player in the online-school business. The second-largest, Connections Education, with revenues estimated at $190 million, was bought this year by the education and publishing giant Pearson for $400 million.
Articles like Saul's as well as a forthcoming study by researchers at Western Michigan University and theNational Education Policy Center, which will show that only a third of K12’s schools achieved adequate yearly progress, the measurement mandated by NCLB, don't exactly instill investor confidence. Neither does the potential these largely unregulated companies have for corruption and cheating. The need lots to customers to maintain profitability and it seem they're not above keeping students in the fold with some grades hanky-panky.
“What we’re talking about here is the financialization of public education,” said Alex Molnar, a research professor at the University of Colorado Boulder School of Education who is affiliated with the education policy center. “These folks are fundamentally trying to do to public education what the banks did with home mortgages.”
But those like Rotherham and former Gates Foundation honcho Tom VanderArk, who are among the main salesmen for cyber learning and who benefit directly from its marketability, will no doubt try and ride to the rescue.

Writes AR: 
"I’m not a stock analyst and I don’t invest in education stocks because of other work I do, but K12 Inc.’s stock dropping 23 percent yesterday on that NYT story seems like an overreaction. Sure there is an enthusiasm bubble around ed tech and online right now but K12 is established and has a diverse revenue stream and operations (think language programs with Middlebury, AP tools, etc…) and online learning is here to stay in some form."
Another rescuer may be Chicago Mayor Rahm Emanuel who is getting ready to offer K12 another big contract. The Chicago Tribune reports that Rahm's hand-picked school board, "is considering awarding a share of a three-year, $1.9 million contract Wednesday to K-12 Virtual Schools LLC, a lucrative, publicly traded company that educators warn has a history of poor academic performance."

Arne Duncan, formerly the district's CEO, originally gave K-12 one of its first large no-bid contracts back in 2006. For those who don't remember, a year earlier former education secretary William Bennett, who founded the company in 1999, was forced to step down as board president after a series of racist remarks he made on the air and under the cloud of a GAO investigation. What he actually said, for those who missed it, was, " aborting black babies would result in a lower crime rate."

When Bennett was still with K-12, he let it be known that the company's curriculum had little respect for the dividing line between school and religion. In an online interview, Bennett explains:
We're centered in the Judeo-Christian tradition, we do not ignore faith and religion, we do not ignore the arguments against evolution, because there are some.
Such is the legacy of K-12 Inc. If it's stock price hits bottom, I don't mind.


  1. The comment was posted by Krish Pillai in the New York Times on December 14th.

    The cyber charter school is the brain-child of Michael Milken, the junk-bond king (indicted for 98 accounts of racketeering/fraud by George H. W. Bush's administration) and William Bennett, the former secretary of the US Department of Education under Ronald Reagan. It was an uphill task for them to get cyber schools up and running but eventually they hired Ron Packard, a mergers and acquisition expert from Goldman Sachs, to set up K12 Inc. Packard was able to get a substantial amount of seed money from Oracle Corporation. So part of the deal may have been an eventual take over of K12 Inc. by Oracle, if market cap were to exceed a certain value. Please don't forget that Ron Packard is, after all, a Mergers and Acquisitions guy from Goldman Sachs (remember Rubin and Paulson). Public money and subsidy is an essential component of this business, without which it would not be as profitable or desirable on NYSE. In 2002, after school districts in PA refused to pay cyber charter schools, Zogby came to their rescue, possibly under pressure from Bennett, by choking off school district funding. Zogby was education secretary of PA at that time. In return, when Gov. Tom Ridge's government left office, Zogby was given a position at K12 Inc, as a senior policy adviser with holdings in the company. And now Zogby is back again in Harrisburg, gunning for the Universities, choking off their funding and driving them into the arms of the fracking business. It all seems like a long bad dream!

  2. Your post was indeed timely. Now comes a report that Faruqi & Faruqi, LLP, a leading national securities law firm, is investigating potential securities fraud at K12, Inc.

  3. K12 boss Packard pulls down $5 million/year salary. If Rahm Emanuel gives them another contract for CPS "cyber schools" that money will come right out of city school budget.