STRA Q2 Deep Dive: Enrollment Shifts and ETS Growth Amid Regulatory Challenges

Higher education company Strategic Education (NASDAQ:STRA) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 2.9% year on year to $321.5 million. Its non-GAAP profit of $1.52 per share was 6% above analysts’ consensus estimates.

Is now the time to buy STRA? Find out in our full research report (it’s free).

StockStory’s Take

Strategic Education’s second quarter was met with a negative market response, as revenue growth lagged Wall Street expectations despite stronger-than-expected non-GAAP profit. Management attributed the results primarily to consistent performance in its Education Technology Services (ETS) segment, as well as disciplined cost management. CEO Karl McDonnell highlighted that “continued strong performance within our Education Technology Services segment” offset some softness in traditional U.S. Higher Education enrollment, particularly among unaffiliated students. Ongoing regulatory caps on international enrollment in Australia and New Zealand also weighed on results, according to management.

Looking ahead, Strategic Education’s guidance is shaped by several evolving dynamics, including continued investment in ETS, recovery strategies for U.S. unaffiliated enrollment, and a pivot toward the domestic Australian market. Management sees mid-single-digit new student growth domestically in Australia as a driver for future recovery, with McDonnell noting, “We have every expectation that Australia, New Zealand will be growing once we anniversary these declines due to the Australian restrictions on international enrollment.” Regulatory changes, such as increases to employer-affiliated tuition assistance caps, may provide incremental benefits in the U.S. business.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to ongoing strength in ETS and targeted initiatives to counteract regulatory and enrollment pressures in core markets.

• ETS segment momentum: ETS revenue and operating income both increased by 50%, fueled by strong demand for Sophia Learning and Workforce Edge, which now supports 80 corporate partners with access to 3.8 million employees.
• Sophia Learning subscriber growth: The company’s direct-to-consumer platform, Sophia Learning, saw 40% growth in both average and total subscribers, driven by increased adoption among both individual consumers and employer-affiliated learners.
• Employer-affiliated enrollment resilience: In U.S. Higher Education, enrollment among students affiliated with employer partnerships grew 8%, now comprising 32% of total enrollment, helping offset declines in unaffiliated student numbers.
• Australian domestic focus: Regulatory restrictions in Australia led to a 3% decline in total enrollment in the region, but domestic student growth in Australia accelerated, with management planning increased marketing investment to sustain this momentum.
• Expense discipline and buybacks: Operating expenses in U.S. Higher Education declined by 1%, supporting margin improvement. The company also repurchased 325,000 shares in the quarter, signaling ongoing capital allocation discipline.

Drivers of Future Performance

Strategic Education’s outlook centers on expanding ETS, stabilizing U.S. enrollments, and navigating regulatory changes in Australia.

• ETS expansion as a growth engine: Management continues to invest in ETS, anticipating that ongoing new partnerships and product enhancements in Workforce Edge and Sophia Learning will further increase their contribution to overall earnings and support margin stability.
• U.S. Higher Ed enrollment dynamics: Recovery in the unaffiliated student segment at Strayer University remains a key focus, with management expecting eventual normalization of enrollment trends and emphasizing the growing share of employer-affiliated students as a buffer.
• Australian regulatory landscape: The company’s ability to accelerate domestic enrollment growth in Australia hinges on increased marketing investment and successful adaptation to government-imposed international student caps. Management expects to “lap” these regulatory declines in early 2026, which could position the segment for renewed growth.

Catalysts in Upcoming Quarters

In the upcoming quarters, the StockStory team will track (1) further growth and profitability gains in ETS and Sophia Learning, (2) stabilization or improvement in unaffiliated student enrollment at Strayer University, and (3) tangible progress in growing domestic Australian enrollments as new marketing investments ramp. The impact of evolving U.S. education policy and regulatory changes in Australia will also be key signposts.

Strategic Education currently trades at $78.11, down from $79.55 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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