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K12 Inc. Stock Down After Scathing Report

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Another big shot in the ongoing debate over virtual schools was fired Wednesday, in the form of a report showing schools managed by online education leader K12 Inc. perform worse on average than brick-and-mortar schools.

The report, "Understanding and Improving Virtual Schools," was released by the National Education Policy Center, a nonprofit research organization based in Boulder, Colo., and a frequent sparring partner for K12 Inc. My colleague Ian Quillen has the details on the results from the most recent report focusing on K12 Inc., which shows students in schools managed by the company perform worse and drop out more frequently than students in brick-and-mortar schools.

In a lengthy response to the report posted on its website, K12 Inc. claimed NEPC used selective data that didn't present the whole academic picture for virtual schools, including the tendency for students to enroll already behind grade level and ignores academic growth.

The company's stock was down more than half a point at the end of trading Wednesday, at $20.82 per share after dropping as low as $20.25 around midday. That price is nearing the level it plummeted in December after a damaging New York Times report on the company that used as a backdrop another NEPC report, which showed 27 percent of virtual schools run by for-profit companies achieved Adequate Yearly Progress, well below the national average. After a high of $39.37 in 2011, K12 Inc. stock dropped from $28.79 to $18.90 within three days of the article.

K12 Inc. is a for-profit, publicly traded company that earned $522 million in revenue in 2011 and enrolls 105,912 students in 59 full-time schools, much larger than the second biggest virtual schools provider, the Pearson-owned Connections Academy, with 20,000 students. As such, most criticism of full-time virtual schools in essence becomes a criticism of the company.

The Times piece and corresponding NEPC report set off a public relations battle between K12 Inc. and its supporters, and the NEPC and other virtual schools opponents. Subsequently, the company published a report and website called "The Truth About Online Learning," and highlighted achievement gains among its students in states like Arkansas. NEPC and the Thomas B. Fordham Institute, a conservative-leaning think tank in Washington, have also traded barbs over how state policy should handle the schools.

Here's a select sampling of the back-and-forth:

  • "The most detailed study is a couple of blog entries." - Kevin Welner, director of the National Education Policy Center at the University of Colorado at Boulder, when asked what information is available on the efficacy of full-time virtual schools. (Quoted in a column by Gail Collins of The New York Times, Dec. 2, 2011)
  • "Gail Collins uses her column to question the validity of online public schools (for everyone except middle class homeschoolers), and tries to make her case using some flimsy arguments, and familiar critics." - Jeff Kwitowski, spokesman for K12 Inc., in a response to Collins' column. (Getting Smart, Dec. 3, 2011)
  • "What we're talking about here is the financialization of public education. These folks are fundamentally trying to do to public education what the banks did with home mortgages." - Alex Molnar, a research professor at University of Colorado who has authored reports for NEPC. (quoted in New York Times, Dec. 12 2011)
  • "The New York Times article featuring K12 Inc. (NYSE: LRN) is unfair and one-sided, and advances an anti-parent choice policy agenda. Instead of presenting a factually accurate look at K12's online and blended learning products and education programs, the writer mostly editorializes, selectively picking and choosing some facts and omitting many others to satisfy a pre-determined narrative." - Kwitowski. (K12 Inc. Statement on New York Times Article, Dec. 13, 2011)
  • "I'm a big believer in transparency and accountability. I do think the more visible you are, the easier it is to try and attack you. For reasons I don't fully understand, there are a lot of people who don't like for-profit companies in education." - K12 Inc. CEO Ronald J. Packard. (Education Week, Feb. 21, 2012) said in an interview last week.
  • "At present, our research shows that virtual schools such as those operated by K12 Inc. are not working effectively. States should not grow full-time virtual schools until they have evidence of success." - Gary Miron, the lead author of the recent NEPC study, an NEPC fellow, and a professor at Western Michigan University. (Cited by Education Week, July 18, 2012)
  • "The report correctly diagnoses many of the problems and shortcomings with the Adequate Yearly Progress (AYP) measure of school progress. Nevertheless, the authors then go on to use the admittedly flawed accountability measure as a way of criticizing the performance of schools managed by K12." - Response to NEPC Report on K12 Inc.

It wasn't all bad news for K12 Inc. on Wednesday, though. A U.S. District Court judge in Florida dismissed a trademark infringement case filed against the company by Florida Virtual School, the full-time virtual school that is a state agency.

CORRECTED

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