'Ed tech' is booming: Wall Street analysts reveal how to trade the $5 trillion education market

Published Fri, Apr 23 20213:07 AM EDT

Education stocks — and ed tech shares in particular — are set to accelerate in the coming months according to analysts at banks including Goldman Sachs and Credit Suisse , who recommended a raft of stocks in the sector. As the pandemic hit, shelter-in-place orders around the world pushed 1.5 billion children into remote learning, according to UNESCO figures. Education app downloads shot up during March 2020, while executives switched to online training . Goldman Sachs analysts noted that global education stocks outperformed the MSCI World Index by around 54% in the 12 months to Feb. 1, when weighted by market capitalization, and by an impressive 135% over the past three years. Meanwhile, UBS said the market has massive potential. "Global education (is) a $5 trillion elephant that is underrepresented in the capital market," its analysts wrote in a research note late last year. These are some of the investment banks' favorite stocks in the sector: K-12 education Stay-at-home measures during the height of the pandemic meant that more than 90% of K-12 students (from kindergarten to the final year of high school) shifted to remote learning, according to UNESCO figures quoted by Goldman Sachs. A top stock pick for Goldman, Credit Suisse and Morningstar is Chinese provider New Oriental Education , which had more than 60 million student enrolments in 2020. "New Oriental is ballasted by strong brand recognition and an entrenched online education platform, Koolearn.com," Morningstar analysts led by Michael Field wrote in a research note last month. The analysts said the firm's U.S.-listed shares give investors access to the "high-growth Chinese market," and they expect it to grow its hybrid and online teaching. New Oriental shares are currently trading at a "significant discount" to what Morningstar thinks they are worth, according to Field in an email to CNBC on Monday. New Oriental also appeared on Credit Suisse's stock list of "ideas with impact," alongside Brazilian company Arco Platform , which is used by more than 1.3 million students in the country. Arco Platform is a pick for Goldman as well. Other K-12 stocks on Goldman's list include U.S. kindergarten provider Bright Horizons and Chinese firm 17 Education and Technology Group . Higher education Pearson is a pick for Morningstar, with the company seeing online learning enrolments "rocket" in 2020. And while its shares have fallen over the past five years due to online competition from the likes of Amazon, Morningstar said Pearson's position as the world's largest education provider is an advantage. "Given its ability to outspend peers, we believe the company will be able to adapt to the digital demands of its customers and remain relevant," its analysts stated. It is currently trading at a "modest" discount to Morningstar's estimated valuation, according to Field, and the stock is also liked by UBS and Goldman. Worker upskilling A blend of in-office and remote working is likely to have "drastic implications for the way that training and development is likely to evolve," according to Goldman's report. This, combined with a rapid shift towards new areas such as e-commerce and green energy means people will need "fundamentally different" skills. Such trends are likely to benefit companies such as Norwegian firm Kahoot , which gamifies adult training, Goldman said. Dutch investment firm Prosus is also a pick for Goldman. The company has invested more than $1 billion in ed tech companies that train employees or teach children. Corporate training tech firms it has backed include U.S. company Skillsoft and Indian business training firm Eruditus. "We expect Prosus to benefit from the rise in upskilling and reskilling as lifelong learning becomes increasingly important," Goldman's analysts said. Short courses Alternative credentials, or those outside of regular degree courses, are also set to continue to gain in popularity post-pandemic. "One of the most dramatic upshots of Covid-19 has been the increasing demand for short courses and alternative credentials, either as a means of casual learning (due to lockdown restrictions) or as a result of unemployment, furloughing and a lack of physical education alternatives," Goldman wrote. Ed tech unicorns such as Udemy are set to benefit, Goldman said. Prosus has a stake in Udemy, so the stock provides a way to get exposure to the company, the bank added. Coursera , meanwhile, saw 59% revenue growth year-over-year and made its market debut last month, with shares closing up 36% on its first day of trading.

The New York Stock Exchange welcomes Coursera, (NYSE: COUR), today, Wednesday, March 31, 2021, in celebration of its Initial Public Offering. To honor the occasion, Coursera Founders Andrew Ng and Daphne Koller and Coursera CEO Jeff Maggioncalda virtually ring The Opening Bell®.

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As the pandemic hit, shelter-in-place orders around the world pushed 1.5 billion children into remote learning, according to UNESCO figures. Education app downloads