The Udemy IPO is the last of a long list of EdTech IPOs in 2021, including that of Coursera in March, but keeping in mind that EdTech IPOs were practically inexistent until this year. Here are some quick thoughts on the company and considerations on its business model and financial/legal risk factors.
Udemy Inc. (the “Company
”) operates a marketplace platform at the center of a vibrant knowledge network. The platform provides over 44 million learners with access to over 183,000 courses in 75 languages and over 180 countries. Founded in 2010, the Company was valued $3,44bn in its initial public offering
on the Nasdaq Stock Exchange on October 29, 2021. The Company had recently raised $50 million of Series F venture funding in a deal led by Tencent Holdings on November 18, 2020.
In a context where traditional education and training methods may seem outdated, Udemy’s platform addresses the need for a new model of learning and teaching skills through online learning
fueled by the COVID-19 pandemic. Management estimates the addressable online market opportunity to be of c.$200B (source: Aritzon).
The Company operates a two-sided marketplace
where its instructors (65K+ in total) develop content to meet learner demand. Courses can be accessed through its direct-to-consumer or Udemy Business, or UB, offerings. The Company leverages AI and Machine Learning in order to provide learners with the right courses.
As such, the Company goes against the traditional publisher model
which involves a lengthy, centralized, and expensive “top-down” development process by multiple levels of editors and reviewers. Instead, through a marketplace model, course development is made easier, though the necessary quality checkpoints must be in place.
In contrast with FY20 performance fueled by the COVID-19 pandemic (+55% growth y.o.y.), the Company has not incurred stellar growth
from the six months ended June 30, 2020 to the six months ended June 30, 2021: its revenue grew 24.5% to $250.6m, which includes c.80% growth in UB revenue (with an UB ARR of $182m at Q2 2021), although it managed to reduce its losses
from $52.5m in YTD20 to $29.4m in YTD21. The Company seems to be on the path to profitability, which it shall confirm going forward.
As a marketplace, the Company’s growth depends on its capacity to attract new learners, instructors and organizations
, and to retain
them. Per the S-1, the Company’s growth strategy is three-fold:
- First, it aims at accelerating the growth of its enterprise business through a land-and-expand strategy within its customer base, characteristic of SaaS growth, and through integrating its UB offering with employees workflow. Of course the Company must start by acquiring new subscribers, and has built a conversion roadmap from free learners to buyers to do so;
- Second, the Company seeks to increase learner retention through its numerous personalization efforts. Understanding usage metrics is key here in validating the Company’s growth, both through i) engagement growth (201M+ course enrollments in 2020, 2.8B minutes watched during Q2 2021) and ii) user experience (NPS of 49);
- Last, the Company is seeking to expand its international footprint, both through organic or external growth. For example, in August 2021, Udemy announced its acquisition of CUX (d/b/a CorpU), or CorpU, an online leadership development platform.
As many marketplaces, the Company is exposed to the risk on depending on a limited number of instructors
, who create a large part of the most popular content on its platform. For example, 5% of its instructors generated 71% and 70% of its paid marketplace enrollments during 2020 and the first half of 2021, respectively. Though hypothetical, the loss of these instructors could adversely affect the business.
Last, even if not subject to legal challenge, the perception of concerns relating to privacy, data protection across multiple countries, or cybersecurity, whether or not valid, may harm its reputation, and must be an area of focus.