As with any crisis, the COVID-19 pandemic has left some sectors battling to survive, while others pivot to take advantage of forced changes in demand.

Among the winners and losers, the cohort of ASX-listed small-caps developing products in education technology (edtech) have caught the market’s attention in recent weeks.

Here’s a summary of their one-month price performance:

Code Name Price 1M % Return Market Cap
3PL 3P Learning 0.96 37.1% $132.5M
RCL ReadCloud 0.31 0.0% $29.4M
OLL Open Learning 0.23 39.4% $32.12M
JAN Janison 0.3 -17.8% $54.5M
SCL Schrole 0.11 -8.3% $8.92M
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The group has posted an average gain of 10.1 per cent, against further declines of 10.3 per cent on the Small Ords index.

And many companies in the space have made new announcements as clients (schools and universities) scramble to shift their operations online.

It raises the question; is the newfound demand for tech solutions temporary, or will it drive changes in the long-term adoption of online education?


Companies on the frontline

About a month ago, Stockhead spoke to companies and analysts in the space to get an update on their response to the first phase of the crisis.

At the time, customers at the high school and university level were in the early stages of finding alternative remote-learning solutions for their students.

But a few weeks down the track, Open Learning (ASX:OLL) CEO Adam Brimo said he’s noticed a shift in how clients are tackling the problem.

“Early on, the changes underway were seen as a more ad-hoc solution until things got back to normal,” Brimo told Stockhead. “But there’s a general acknowledgement now that the current situation is going to last for some time.”

Two other industry CEOs we spoke to — Mohamad Jebara from Mathspace and Tom Richardson from Janison Education (ASX:JAN) — offered the same view of conditions on the ground; clients are now preparing for more permanent changes.

Richardson provided a neat explanation on the pace of the shift: “One way to look at it is what was going to happen over five years, has really happened in two months,” he said.

Such rapid changes make for a challenging operating environment. But companies that can execute on their strategy could end up well-positioned in the new paradigm that results.

For OpenLearning, which provides software to facilitate the shift to online teaching solutions, the initial focus has been improving the content side.

“What we’re mostly talking to providers about is how to build and deliver high-quality programs in the second half of the year,” he said.

“That’s the big challenge. They’ve all got traditional learning management systems where you can upload powerpoint slides, PDFs and videos.

“But the feedback from students is that’s not really comparable or as good as what they would hope. So we’re working together with a few providers on how to solve those problems, and we’re hoping those become an example for other institutions.”

Mathspace CEO Jebara has also been moving fast to accommodate the surge in demand created by the pandemic. The company provides a “textbook replacement” for math students across years three to 12, with an in-built process for step-by-step feedback to solve each problem.

Jebara founded Mathspace in 2010 after a successful career as a derivatives trader, where he profited from the surge in market volatility during the 2008 financial crisis.

But the experience left him motivated to find a pursuit where he could “earn a living and add value, not just be the better player in a zero sum game”.

As a measure of the new demand for online learning services, Mathspace had built a customer base of around 1,000 schools in Australia and New York prior to the crisis. Now, it’s “more or less doubled”, Jebara said. And as the crisis draws out, some of those changing demand patterns could become permanent.

“If this is going to last three-to-six months, I think it will change education forever,” Jebara told Stockhead.

“I don’t think we’ll go to fully remote learning — there’s parts of in-person learning that teachers and students still need. But what it will do will be a catalyst for a shift in data.

“Teachers are going to be more data driven then they ever have been before. I think there’ll be a shift towards self-directed learning and student ownership, and the role of teacher is to use that data to offer more targeted assistance.”

Janison’s Richardson offered similar sentiments about the pace of change in the sector, where “the tectonic plates have shifted so quickly that they probably won’t go back in the same place”.

For Janison, which provides technology to facilitate secure remote examinations and offsite supervision, the key challenge in recent weeks has been to match the pace of the tech scale-up with customer capabilities.

“The catalyst is there now for clients to do something very quickly. But inevitably in that process there’s pain points,” he says.

“For us there’s two main parts to that; one is the platform and one is the content. So we’ve been able to help clients very quickly with content, and translate that work to an online environment.

“The issue with the platforms is they’re typically not as quick. That’s where the client has someone managing procurement; negotiating payment terms, managing contract risk. That’s a parallel process that runs next to implementing the technology.

“From a tech standpoint, our capability is there. For example we know we can handle 9,500 schools across Australia, all online at the same time. Our server and applications can stand up to all of that. Now it’s about working with the institutions themselves to develop their management practices to match that capability.”


Investor perspective

For small-caps expert Dean Fergie, principal at Cyan Investment Management, the COVID-19 bear market has required some tough decisions over recent weeks to manage risk.

Cyan has moved its cash weighting up to around 40 per cent, and cut positions in companies that operate in sectors particularly exposed to the crisis. Speaking with Stockhead, Fergie said an active investment approach was adamant in the current climate.

“The economic outlook has completely changed in four weeks,” he said. “It’s hard because it’s so fast-moving; the market’s trying to second guess it all the time, trying to preempt it.

“Everyone’s going to take some pain, some more than others. But it’s so uncertain where it will end up and our view is anything that looks immediately threatened, let’s just get out of it. Because this could get worse before it gets better.”

At the same time, Cyan has taken the opportunity to add to positions across sectors on its watchlist. And that includes three stocks in the edtech space — OpenLearning, Schrole Group (ASX:SCL) and ReadCloud (ASX:RCL).

“We’ve gone pretty big in education, and those are three companies that have some really good tailwinds and should do well,” Fergie said.

“Our view is the shift to remote learning is a real change — schools and universities are saying we’ve got to move forward on this sort of stuff. The situation has forced people to use new tech and they’re saying – this is working well.”


Laying the groundwork

All three companies we spoke to highlighted that the education sector more broadly is geared around making long-term, low-risk decisions.

So for an external catalyst such as COVID-19, the rapid shift towards tech solutions to maintain operations will inevitably come with some growing pains.

“It’s an interesting challenge for edtech, but I think the whole industry has really rallied behind schools at this time,” Jebara said. To accommodate the surge in demand, Mathspace is on-boarding customers free of charge amid the uncertainty.

“It’s all about supporting schools as much as we can. If we can give them that certainty right now, the idea is that in the medium term they’ll see the benefit, and we’ll move onto winning their business.”

Similarly, Richardson said the focus on helping customers to address bottlenecks may not flow directly through to the income statement.

“Pipelines are growing fast, but the speed of conversion means deal-flow will continue to pick up in the June quarter, but the time-frame for a transition to revenue will move towards 2021 (financial year),” he said.

“Over the next 12-18 months I think you’ll see fundamental changes in the economics of these businesses.”