Online learning has come off age. With two major companies now actively trading in the market i.e Coursera (NYSE:COUR) and Udemy (Nasdaq:UDMY), it is now widely accepted that online learning is here to stay. Both of them have fallen quite a bit from their listing price with the recent tech carnage in the market also affecting their stock performance.
Lets see some statistics here:
- Coursera priced 15.73 million shares at $33 per stock. In the IPO offering, it raised $520 million at an implied valuation of USD 4.3 bn. Interesting the stock gave a listing gain of 36% closing on the debut day at $45 per stock. In fact, it even went as high as $58 per share on April 7, 2021. However, since then it has corrected quite a bit and is currently trading at $15.43 per stock as the closing price on July 26, 2022. See the chart below for more details on the stock price movement:
- Following Coursera, Udemy sold 14.5 million shares at $29 per stock as IPO fundraising of USD 421 mn. Incorporating the total diluted shares, the total implied value of the company was around USD 4.3 bn almost similar to Coursera. However, unlike its most prominent competitor, it fell on its listing day. The stock declined 6% on debut to list at below the issue price. Since then, the stock has been declining like its competitor currently trading at USD 12.03 per stock closing price as on July 26, 2022. The chart below provides more detail on the stock price movement:
Since listing, both stocks have declined considerably. While Coursera has declined 66% from its initial price, Udemy has fallen by 55%. Overall, we can argue Udemy stock has done slightly better than Coursera from the perspective of listing.
Udemy vs Coursera – who has better financials to support valuation?
Beyond the short term trading data, what is important to look at is the long term potential of each of the company from a financial analysis perspective. Long term investors would look at the potential cash flows each business can generate and decide accordingly which stock would be better to hold currently.
Lets compare the financials on each metric:
Udemy is clearly a bigger company in terms of revenue at an FY 2021 run rate of ~USD 518 mn. Coursera on the other hand is a tad lower than Udemy at FY 2021 revenue of USD 415 mn. While both companies grew aggressively in FY 2020 given the pandemic that happened for most part of the year, Udemy’s revenue has definitely slowed down in FY 2021. Coursera on the other hand has grown faster than Udemy in FY 2021 which gives it a big upper hand for future revenue potential of the two companies. Clearly, Coursera is on a faster growth trajectory than Udemy currently.
- Cost of Sales :
Cost of revenues relates to the fees that these platforms need to pay to the educational partners and instructors as well as the expenses associated with the operations of the platform. Coursera has done better than Udemy by a few percentage point every year on this metric. In 2021, Coursera’s cost of sales is 40% of revenues while Udemy’s is slightly higher at 46% of the revenues of the company.
- Sales & Marketing:
While in 2019, Coursera was way lower than Udemy in terms of its sales and marketing spend, Now, both Coursera and Udemy has sales and marketing expense at 43% & 44% respectively of its total revenues. So, they are more or less the same here.
- Research & Development:
R&D expenditure is a good investment to fuel the future growth in the business through innovations. Surprisinly Udemy does way too little on R&D as compared to Coursera. In 2021, while Coursera’s R&D expense as % of revenues was very high at 33%, Udemy’s was significantly lower at just 13%. While R&D expense helps to build long term innovation in this segment, yet there is a huge difference between the two companies on this front.
- General & Administrative Expenses:
General and administrative expenses consist primarily of personnel and personnel-related costs, including stock-based compensation and costs related to legal, finance, and human resources departments, as well as indirect taxes, professional fees, and other corporate expenses. On this front as well, Udemy is doing better than Coursera in FY 2021. While for Coursera, G&A as a % of revenues is 19%, for Udemy it is lower than that at 12%. So Udemy scores on this front as well.
- Profitability Margin:
Interestingly, both Coursera and Udemy have negative profitability margins currently. While given the high R&D expenses, Coursera’s FY 21 operating profit margins (EBIT %) is at -34% and Udemy is significantly better than that -15%. So there is a huge differential there in terms of the margins between the two companies. Udemy is a clear winner although both are at negative margins given their cost structure. Another point here is to note that while Udemy has improved its margins gradually from FY 2019 to FY 2021, Coursera’s margins have in fact eroded over time.
The Financial Scorecard:
Based on the discussion above, if we have to give a scorecard on the financial parameters to the two companies, we would conclude
- Coursera is doing well in terms of Revenue Growth rate which is significantly higher than Udemy.
- Udemy’s profitability margin is improving significantly compared to Coursera where the margins are deteriorating further. The main reason for the difference in margins is the lower R&D spend by Udemy than Coursera.
Based on this analysis, we would conclude that from a financial performance perspective, there is a bit of mixed conclusion here given the difference in revenue growth and margins perspective.
Valuation Perspective (as on July 26th, 2022):
Based on current trading value, Coursera is valued at USD 2.223 bn while Udemy is lower at USD 1.68 bn. At this price, the implied Price to Sales valuation metric for Coursera is higher at 5.4x than Udemy at 3.5x. Clearly, Udemy’s valuation is almost 40% lower compared to Coursera currently. This is due to the fact that Coursera’s growth is significantly ahead of Udemy in terms of revenues.
Given the above comparison, we however feel that a business that is on the path to achieving profitability quickly should be more favoured over the other. While revenue growth is important, it is a bigger imperative for companies to show profitability. On this argument, we would favor Udemy as a better company to buy vs Coursera. Udemy will still need to convince the market that it can become profitable sooner than later.
However, we still have to put a disclaimer that our analysis is purely for educational purposes and is not meant to be used for your individual trading or investing recommendation. We do not recommend you to take any position based on the above analysis.