Summary
Udemy has gone public in an IPO that has seen a relatively modest welcome.
Shares trade largely flattish, or actually down a bit as the slower pace of growth vs. peers and continued losses make investors a bit cautious.
Relatively lower sales multiples look attractive, but I fear that the growth and business model is simply a bit softer vs. some peers.
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Zolak/iStock via Getty Images Udemy ( UDMY ) has gone public in an offering which has received a modest welcome as investors fear that this learning platform is perhaps not as unique as competing platforms. Slower growth and margin concerns (or better-said losses) mean that I am not necessarily finding the relatively lower sales multiple appealing.
I think that Udemy here largely trades around fair value, as at these levels I fail to see great appeal here amidst reasonable relative sales multiples. Knowledge For The Real World
Udemy aims to create new possibilities for people and organizations everywhere by connecting them to knowledge and skills which they require in a continued changing world.
The company was founded in 2010 and four years later it breached the 1 million learners milestone. Ever since, the company has grown rapidly, and by 2017, it had 10 million learners, a number which has grown to 44 million by the time of the public offering late in October.
The company offers a marketplace platform with thousands of up-to-date courses in a dozen languages. The company operates under the belief that traditional education methods are becoming outdated. The rapid change in the effective qualities needed in today’s world require lifelong learning and continued skill acquisition.
By now the platform includes 44 million learners which can access 183,000 courses in 75 languages. Moreover, the platform is not just one-sided, as there is iterative Q&A as well, including quizzes, exercises, among others. The idea is that the platform offers a flywheel of both course applicants and the marketplace, as Udemy focuses on customization to drive appeal and good recommendations.
28 million of the 44 million users follow nearly 18,000 of the free courses offered on the platform. These customers mostly comprise consumers, but furthermore involves corporate users who provide this to their employees as a form of corporate training. The business model relies heavily on paid instructors which provide these courses. In total, these instructors were paid $161 million in 2020 or close to $3,000 on average for nearly 55 thousand instructors. Valuation & IPO Thoughts
Management and underwriters of Udemy aimed to sell 14.5 million shares in a preliminary price range between $27 and $29 per share, as pricing has been set at the high end of the range. This results in gross proceeds of $420 million coming from the offering.
With 137.4 million shares outstanding following the public offering, the company has been awarded a $4.0 billion equity valuation at the offer price. This includes a net cash position of around $350 million, for a $3.65 billion enterprise valuation.
The company has seen rapid growth. In the year 2019, Udemy generated $276 million in revenues on which an operating loss of $68 million has been reported. Revenues were up 55% in 2020 to nearly $430 million, as operating losses increased slightly to $73 million, still resulting in some relative operating leverage of course.
The company has seen continued commercial traction in the first half of 2021, albeit that revenue growth slowed down to 24%, as revenues just surpassed the $250 million mark, now running at a run rate of just over half a billion. The growth slowdown does not come unexpected as the second quarter of 2020 has been very strong, driven by the pandemic, of course, resulting in very tough comparables. Operating losses have narrowed significantly, as an operating loss of $50 million narrowed to $27 million for the six-month period.
The company has only reported the preliminary third quarter results, with revenues in the first nine months of the year seen at around $379 million. This suggests that third quarter sales come in close to $129 million, up less than 10% from the same quarter last year. With operating losses for the nine-month period seen around $37 million, that reveals that third quarter operating losses are seen around $10 million.
At the offer price and valuation, the company is awarded a 7 times sales multiple as the company continues to post moderating losses. The pace of growth is hard to […]
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