Udemy’s share price drops in day one of trading for the e-learning platform
Udemy, an 11-year-old platform for online courses, went public on Nasdaq today. Its shares, which opened at $ 29, fell 5% on the first day of trading to $ 27.50, valuing the company at $ 3.7 billion.
The subject of two Forbes reports in June 2020, Udemy hosts unaccredited courses taught by instructors who create their own prerecorded content. The company shares the revenue from the courses, which cost an average of $ 11, with the instructors. Udemy used to give instructors up to 50% of its revenue, but recently reduced that figure to 37%.
Forbes described how a few hundred of Udemy’s 65,000 instructors scored six or more figures. Some earn up to $ 1 million a year.
The company’s story reads like a novel about immigrant success. Founder Eren Bali, 37, grew up in an impoverished Turkish village where he learned math online. He believed that great virtual instructors didn’t need fancy degrees. After his 2007 attempt to start an e-learning startup in Turkey failed, a Silicon Valley dating site recruited him as an engineer.
With two co-founders, he launched Udemy (the name is a coat rack of “you” and “academy”) in San Francisco in 2010 after more than 200 backers turned them down.
Pandemic lockdowns have been a boon to online learning. Udemy’s listings have skyrocketed and in November investors poured in $ 50 million, valuing the company at $ 3.25 billion. This brought the total invested capital to over $ 300 million.
But when Udemy’s IPO dossier was released in early October, it became clear that the company had never been profitable. “We have a history of losses and we may not be able to generate sufficient income to achieve or maintain profitability in the future,” explains the “risk factors” section of the S-1 SEC filing. Despite the glut of customers signing up for sourdough baking and guitar lessons in 2020, annual losses hit nearly $ 77 million in 2020. Business deficit: $ 408 million.
Last year, CEO Gregg Coccari told Forbes that Udemy would be profitable if he didn’t spend so much on expansion. But its ranking suggests the opposite. Udemy spends $ 1.20 for every dollar in revenue it earns.
“It’s like the joke of Polish farmers,” says investor in education technology Daniel Pianko, which passed on a Udemy stake years ago. “The farmer comes back to his wife and says, ‘I earned nine zloties by selling my wheat.’ The woman slaps him and says, “It cost us 10 zloties to grow the wheat. And the farmer said, ‘But I sold a lot.’ “
Still, Pianko sees promise in Udemy’s business. It sells annual subscriptions for $ 360 per employee. Popular courses include how to write more effective professional emails and how to communicate with a team.
This business is more profitable than the consumer division because instructors get a smaller reduction in revenue, just 25%. Subscription revenue also requires less marketing to keep operating. This business is growing rapidly and represents 30% of Udemy’s 2020 revenue of $ 430 million.
Udemy is also testing a consumer subscription model, priced at $ 20 to $ 30 per month, that would give customers unlimited access to 5,000 courses.
Speaking on the phone from a Times Square hotel this afternoon, CEO Coccari looked weary but relieved. “It’s nice to reach the finish line,” he said. Of the fall in the share price, he said, “The IPO market is spongy. We are a long-term player.
How long before Udemy turns a profit? “We are not allowed to discuss this stuff,” he said. “I don’t want to break the rules the first day I’m a public company. “