Udemy – the leading online academy
According to the World Bank, currently, the world’s working population is 3.4 billion people. However, according to forecasts based on data from the International Labour Organization, in 2030, the global number of employed will increase by 230 million people. At the same time, about 2 billion jobs may disappear by this time due to labor automation.
According to the World Economic Forum report, 97 million new business roles will appear in 2025. there is an obvious need for retraining or additional knowledge.
According to the World Bank, there are more than 200 million people in the world who have graduated from colleges and universities but at the same time need additional professional education. Moreover, 94% of corporate executives expect employees to improve their skills.
However, the traditional model of full-time teaching, using classroom classes, does not keep up with the demand for new skills. In addition, full-time education is not like residents of remote regions and foreign countries who want to improve their skills. Finally, the cost of higher education is rapidly becoming more expensive – for example, the total debt of American students for higher education has already exceeded $ 1.6 trillion.
Distance learning allows you to combine advanced training with remote work and becomes more familiar thanks to isolation. According to the UN, 94% of students faced the closure of schools and universities due to the COVID-19 pandemic. However, it is not enough to provide students with educational content.
For the online education business model to pay off, the user must be guided through the funnel from the introductory webinar through trial classes to subscription, payment, and re-subscription to the following courses. Since 2010, platforms have been emerging that provide teachers with the necessary tools. In addition to Udemy, notable market players are Coursera (COUR), Chegg (CHGG), Udacity, Class Central, FutureLearn.
Udemy, Inc. (UDMY) estimates its potential target market at $223 billion. The volume of the online educational services segment for individuals is $152 billion, and for corporations – $71 billion.
Udemy, Inc. has set a goal to maximize the democratization of the online market of educational services. Unlike Coursera, the emphasis from the very beginning was not on cooperation with highly-rated universities but on providing tools to everyone who wants to start teaching students online. Based on the Udemy platform, there is a two-way marketplace where teachers offer courses, and students subscribe to them and study.
The Udemy, Inc. line of services includes educational services to individuals (Udemy direct-to-consumer) and educational services to corporations (Udemy for business). The business direction in 2020 brought Udemy 24% of revenue, and in the first half of this year, its share increased to 31%.
More than 183 thousand courses have for them. On average, each student is in five classes. In addition, 8.6 thousand organizations have signed up for Udemy educational services.
The most popular subjects are in the IT field.
For example, 32 million people have signed up to study Python, another 10 million are looking for Web-mastering, and 6 million are machine learning. About 3 million in various business courses.
The total number of teachers exceeds 65 thousand. On average, each of them has prepared three online courses. Moreover, 80% of the courses are updated at least once every two years.
Revenue of Udemy, Inc. in 2020 increased by 55.5% year-on-year to $429.9 million. Over the past 12 months, revenue amounted to $479 million, an increase of 40% compared to the same period a year ago. Thus, the revenue growth rate is decreasing.
The value of sales in 2020 was $209.2 million, an increase of 45.7% compared to the previous year when it was $143.5 million.
Gross profit in 2020 amounted to $220.7 million – 66.1% more than a year earlier ($132.8 million). The marginality of gross profit was 51.3%, an increase of 6.8%.
In 2020, $50.6 million on research and development – 47% more than a year earlier ($34.4 million). These costs in 2020 amounted to 11.7% of revenue. A year earlier, they accounted for 12.4% of revenue. Thus, the share of research and development costs has decreased by 5.7% over the past year.
Marketing costs in 2020 increased by 52.3% year-on-year to $192.6 million. As a result, the share of marketing in 2020 amounted to 44.8% of revenue. A year earlier, this share was 45.7% of revenue. Thus, the percentage of marketing in the cost structure remains almost unchanged.
In 2020, $50.8 million on general and administrative expenses – 27% more than a year earlier. The share of general and administrative costs in revenue is 11.8%. A year earlier, it accounted for 14.4% of revenue. It should note that the percentage of general and administrative expenses decreased by 18.1% over the past year.
Operating losses in 2020 amounted to $73.4 million. A year earlier, they amounted to $68 million. Net losses last year amounted to $77.6 million against $69.7 million a year earlier.
Udemy’s liabilities amount to $279.2 million. In addition, the company has $163.2 million in cash.
The company intends to use the raised amount, which will amount to $377.5 million when placed at the average price of the range ($435 million – if underwriters exercise the option), for general corporate expenses, including worCapitalpital, operating expenses, and CAPEX. In addition, it can as Part of the funds to absorb companies to acquire technologies, services, and components.
Attractiveness factors
Udemy’s potential target market is $223 billion ($152 billion for services to individuals and $71 billion for corporations).
The company has more than 44 million customers – individuals and more than 8.6 thousand corporate clients. In addition, sixty-five thousand teachers provide services on the company’s marketplace.
Revenue of Udemy, Inc. in 2020 in annual terms increased by more than 55% to $429.9 million.
In our opinion, Udemy’s business model is free from several risks inherent in Coursera. In particular, there is no need for partnership with highly rated universities and the dependence of the company’s future on the founder’s participation or any of the top managers.
Education is a regulated industry, so further development of the company may encounter legal restrictions.
The company is unprofitable. Operating losses in 2020 amounted to $73.4 million, and net losses – $77.6 million. Coursera(COUR) and Chegg (CHEGG) are also chronically unprofitable, with Coursera predicting losses for the coming years. The possibility of payback while maintaining business models and a high level of competition remains hypothetical.
The growth rate of the market is declining and with it the growth rate of Udemy’s revenue. In 2020, they were 55%, but in the last 12 months – only 40%—a similar decline among competitors.
Marketing costs account for 45% of revenue and do not decrease over time.
The company depends on a small number of successful courses. Although 65 thousand instructors use the Udemy platform, 70% of the revenue is 5% (i.e., 3.2 thousand people or an average of 18 teachers per country).
Significant risks are associated with the need to protect intellectual property.
The company has not previously paid dividends and does not intend to pay them shortly. All available funds will be for business development.
Comparison of Udemy and Coursera
Unlike many other issuers, Udemy has such a close analog in the form of Coursera that it is difficult to resist comparing them. Udemy is a year older – it was incorporated in 2010, while Coursera in 2011. Udemy employs 1,013 employees – 30% more than Coursera (779).
Udemy has 32 investors, while Coursera had only 23. There are common ones among investors – for example, LCapitalpital – but the lists generally differ significantly. $311 million has been invested in Udemy, while $443 million has in Coursera. On average, a Udemy investor accounts for half as many investments ($9.8 million) as a Coursera investor ($19.3 million).
Udemy’s revenue in 2020 amounted to $429.9 million – 56% more than a year earlier and 68% more than Coursera. However, the growth rate of Coursera’s revenue was even slightly higher – 59%.
The marginality of gross profit for both companies is the same – 51% for Udemy and 52% for Coursera. Likewise, the general and administrative expenses share about revenue is almost identical – 12% for Udemy and 13% for Coursera.
Differences in the business model manifest primarily in the shares of research and development (R&D) and marketing costs. Since Udemy focuses less on artificial intelligence and innovative learning, it also has less research and development costs – only 12% of revenue. And Coursera spends 26% of its income on R&D. In absolute numbers, Udemy also has fewer costs for this item – $51 million versus $77 million for Coursera. At the same time, Udemy’s total marketing costs are almost twice as high as Coursera’s – they amounted to $192.6 million, grow in proportion to revenue, and account for 45% of it. Coursera spent only $107 million on marketing, that is, 37% of revenue.
Investors control both companies, and the founders’ shares are tiny due to investors’ initial skepticism about online education in general.
In exchange for the investment, they took a substantial share of the shares. As a result, Udemy’s co-founder, Eren Bali, has only 1.3% of the votes, and he has been working on other projects in recent years. The co-founder of Coursera, Andrew Eun, has a 7% stake in the company.
The conclusion is that Udemy’s business model is not as risky as Coursera’s. Note that the description of Udemy risks fit on 35 pages, while Coursera took 43 pages.
Udemy’s operating losses in 2020 were $73.4 million, and Coursera’s operating losses were $66.6 million. The companies’ net losses are very close to working – $77.6 million for Coursera and $66.8 for Udemy. Coursera’s operating losses increased in absolute terms in 2020, and so did Udemy. However, Coursera managed to reduce the total value of net losses in 2020, and Udemy did not take care of this.
