Is Stride's Expanding EBITDA Margin a Sign of Operating Leverage?

Core Insights - Stride, Inc. (LRN) reported a strong performance in Q3 fiscal 2025, with adjusted EBITDA increasing by 40% year over year to a record $168.3 million, significantly outpacing the 17.8% revenue growth, indicating effective operating leverage [1] - The gross margin for the quarter improved by 190 basis points to 40.6%, with management projecting a 200-basis-point improvement for the full year, driven by a 21% year-over-year enrollment growth and a focus on cost discipline [2] - Stride achieved enrollment growth without significant increases in marketing spend, indicating favorable unit economics and lower customer acquisition costs [3] - The company is balancing margin expansion with reinvestment in technology platforms, teacher support tools, and student socialization initiatives, which are essential for sustaining growth [4] - Stride's rising EBITDA margin reflects real operating leverage, improved efficiency, and strategic resource allocation, positioning the company for structural profitability over time [5] Competitive Landscape - Stride's expanding EBITDA margin places it ahead of peers like Adtalem Global Education (ATGE) and Strategic Education, Inc. (STRA), both of which face their own efficiency and profitability challenges [6] - Adtalem has made strategic acquisitions in healthcare education but has seen gradual margin expansion due to integration costs and restructuring charges, with its adjusted EBITDA growth rate trailing Stride's [7] - Strategic Education emphasizes flexible learning models but has experienced uneven growth, with flat to modest revenue growth and stalled operating leverage due to enrollment headwinds and pricing pressures [8] Financial Performance - LRN's shares have surged by 104.6% over the past year, compared to the industry's rise of 14.8% [9] - The company's Q3 adjusted EBITDA reached a record $168.3 million, with a 21% enrollment growth contributing to a gross margin increase to 40.6% [11] - LRN stock is currently trading at a forward 12-month price-to-earnings multiple of 18.26X, above the industry average of 16.46X, with fiscal 2025 earnings per share estimates increasing to $7.09 from $6.96 in the past 60 days [12]