Summary
EdTech is an industry with great potential, and investors are wrongly underestimating it.
Coursera is one of the leaders in the industry. Its shares lost about 50% of their value after the IPO, and at the moment, the company can be considered undervalued.
In this article, I review the business course, financial analysis, and DCF evaluation. The article also contains an analysis of the EdTech industry.
Ivan Martynov/iStock via Getty Images Investment Thesis
EdTech is a very underrated and promising industry. At first glance, it seems logical to expect a decline in the industry due to the return to offline education. But in fact, EdTech is much more than just teaching students and schoolchildren. It is a very large but undervalued industry that will continue to grow (albeit at a slower pace) even after the pandemic. EdTech is a very diverse industry with a wide variety of business models. However, many companies are looking to scale their products to the global market. Giants such as Coursera ( COUR ) have already successfully entered the global market and are mainly focused on short academic courses. There are also large local players in emerging markets, such as Skillbox, which benefit from the need for regional players offering modern vocational education that can give good jobs. Most of them are successfully implementing their strategy, and will definitely benefit from the growth of the EdTech industry in the coming years.
Since its IPO, Coursera’s stock price has fallen about 50%. If the fast-growing EdTech company seemed very overvalued then, the situation looks different now. The company continues to show decent revenue growth, and its valuation (based on the DCF model) shows decent potential. Regardless of the fact that Coursera is making a loss, it has a fairly strong balance sheet, and within a few years, it could reach a stable profit.
In this article, I break down Coursera’s business, key financial aspects, and an analysis of the EdTech industry. I also present Coursera’s DCF valuation model, which outlines its investment potential. What is Coursera?
Coursera is one of the largest online educational platforms in the world. The company was founded in 2011 and it now has over 92 million registered learners, 711 enterprises, and over 16,000 degree students. The platform’s main product is online educational courses put together with universities, corporations, and educators.
The Coursera business consists of three segments : Consumer – 60.5%. Coursera receives payment for educational courses from individual users and pays a portion of the profits to partners who create these courses. The segment’s gross margin is 68%.
Enterprise – 28.9%. Institutional consumers (corporations and educational institutions) work with Coursera based on a subscription model. Coursera pays partners and course creators for each student. The segment’s gross margin is 67%.
Degrees – 10.6%. This segment is represented by students enrolled in bachelor’s and master’s degree programs created jointly with universities, and they receive a diploma at the end of their studies. It is noteworthy that over the past year the share of this segment has grown because its gross margin is 100% (all expenses are borne by the university and paid by Coursera for the use of the platform).
The Coursera business is well-diversified and has a very high gross margin. Also, it is a global business. Coursera sells its services all over the world, but predominantly, in the U.S. and EMEA. Financial review
Coursera is a fast-growing company. And as is typical of many such companies, it is unprofitable. However, it is not as bad as it may seem at first glance. Coursera The company’s revenues are steadily growing at a good pace for this industry, and even more significantly, revenues are growing faster than costs of revenues. Operating expenses rose sharply in the second quarter of 2021 due to growth in SG&A and R&D expenses. This, too, can be seen as a positive signal, as the company is actively investing in the business. However, it is important that revenues continue to grow rapidly due to these investments. Revenues 37.0% 12.2% 6.9% 15.5% 7.6% 15.4% Cost of Revenues 40.8% 10.8% -0.5% 5.9% 2.4% 11.0% Operating Expenses 20.2% 6.1% 22.1% 57.1% -7.0% 17.9% Source: created by the author using data from Seeking Alpha
As mentioned above, Coursera has a very high gross margin, which continues to grow. The current figure is significantly higher than the industry average .
Losses are bad, but the value of the company determines the cash flow. Coursera is gradually reaching a positive net cash flow. A more […]
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