Udemy (NASDAQ: UDMY) is a compelling investment opportunity, supported by a strong secular growth trajectory in the online education market. The transition to online education, driven by accessibility, affordability, and flexibility, presents an exciting opportunity.
Udemy’s two-sided marketplace and the resulting flywheel effect provide a competitive advantage in content creation and learner engagement. Despite recent financial challenges, Udemy is well-positioned to benefit from a recovering macroeconomic environment and is expected to return to its historical growth rate of around 20%.
Company Overview
![](https://st5.depositphotos.com/4661507/68344/i/600/depositphotos_683447464-stock-photo-lod-israel-july-2023-udemy.jpg)
Udemy is a leading online learning marketplace offering a diverse range of courses to learners worldwide. As of the first quarter of 2024, Udemy hosts over 220,000 courses created by approximately 75,000 instructors, catering to over 37 million global monthly unique visitors.
The platform supports courses in 74 local languages. Revenue-wise, the Enterprise segment (Udemy Business) constitutes 58% of FY23 revenue, with the Consumer segment accounting for the remaining 42%.
The Enterprise segment is experiencing faster growth, with a 23.5% increase in the first quarter of 2024, while the Consumer segment saw a 2.5% decline. Geographically, revenue distribution is as follows: North America (40%), EMEA (30.4%), APAC (22.5%), and Latin America (7.1%).
Shift to Online Education
The shift to online education represents a major secular tailwind for Udemy. The COVID-19 pandemic significantly accelerated the transition from offline to online education, creating a “perfect storm” for online learning platforms.
The global online education market, valued at approximately $170 billion in FY23, is projected to grow to around $280 billion by the end of the decade, representing a compound annual growth rate (CAGR) of about 9%.
Several factors drive this shift:
- Accessibility: Online education provides almost instant access to a wide range of content, overcoming the limitations of traditional classroom settings. This is particularly beneficial for learners in remote areas, where access to subject-matter experts on complex topics like AI or quantum physics is limited.
- Affordability: Online education is generally cheaper than offline education, reducing the financial barriers for learners.
- Flexibility: Online education offers a flexible schedule, which is particularly advantageous for adults in the workforce, shift workers, and single parents who cannot commit to fixed classroom hours.
Two-Sided Marketplace and Flywheel Effect
Udemy’s two-sided marketplace model, which connects instructors with learners, is a key competitive advantage. Instructors create their own course materials, including exercises, videos, quizzes, and Q&A features, which are then submitted to Udemy for quality control. Learners purchase these courses, generating revenue for the instructors.
Content Areas with Rising Demand
Udemy leverages student usage and completion data to identify content areas with rising demand, providing feedback to instructors to enhance course enrollment, completion rates, and content quality.
This flywheel effect results in a strong content creation engine, with Udemy adding over 5,000 courses to the platform each month. More content attracts more learners, which in turn incentivizes instructors to create additional courses, further driving platform growth.
Financial Performance
In the first quarter of 2024, Udemy reported revenue of $196.8 million, reflecting an 11.6% growth rate, which exceeded consensus estimates by 100 basis points. Adjusted EBITDA reached $6.5 million, implying a 3.5% margin, also surpassing expectations.
Demand Remains Strong
Despite a 2.5% decline in Consumer revenues, the underlying demand remains strong, as evidenced by a 3.4% increase in average monthly buyers and a 7% increase in average monthly visitors.
The decline in average revenue per monthly buyer, attributed to a strong USD, resulted in a net negative impact on growth. Adjusting for foreign exchange (FX) effects, Consumer revenue was nearly flat.
The Enterprise segment demonstrated robust performance, with a 23.5% revenue growth in the first quarter, driven by strong large deal activity.
Although customer growth decelerated from 13% in the fourth quarter of 2023 to 11.9% in the first quarter of 2024, this slowdown is attributed to the challenging macroeconomic environment. The net dollar retention rate also decreased due to the high cost of capital impacting upsells.
Valuation and Future Outlook
Udemy presents an attractive upside potential, with a discounted target price of approximately $18. The secular growth tailwind for online education remains robust, and as the macroeconomic environment improves,
Udemy is expected to return to its historical growth rate of around 20%. For FY24, using the midpoint of management’s revised guidance ($800 million), followed by a growth acceleration to 20% by FY26 and FY27, Udemy is projected to achieve approximately $1.3 billion in revenue by FY27.
Management’s target of 15-20% adjusted EBITDA margins by FY27 appears achievable, given the recent strong EBITDA performance.
Using the S&P 500 Index (SPX) forward EBITDA multiple as a benchmark, an appropriate forward EBITDA valuation multiple for Udemy is around 14x, reflecting its faster growth rate compared to the market.
This yields an implied target price of $24 for FY27. Discounting this target price by a required rate of return of 12% over 2.5 years results in a present value target price of approximately $18.
Investment Risks
Several risks could impact Udemy’s growth trajectory:
- Prolonged Macro Weakness: Continued economic challenges could weigh on demand, particularly in the Enterprise segment, as businesses may reduce budgets for learning and development.
- Management Changes: The search for a new Chief Revenue Officer (CRO) introduces execution risk, as the new CRO may not align well with the existing team.
- AI Advancements: The development of AI technologies capable of teaching various subjects at a proficiency level comparable to human experts could disrupt Udemy’s business model in the long term.
Udemy’s Strong Positioning
![](https://st5.depositphotos.com/74206148/69139/i/600/depositphotos_691399778-stock-photo-dhaka-bangladesh-december-2023-hand.jpg)
Udemy is well-positioned to capitalize on the strong secular tailwinds in the online education market. Despite recent financial challenges, the company’s two-sided marketplace model and global reach provide a solid foundation for future growth.
As the macroeconomic environment recovers, Udemy is expected to return to its historical growth trajectory. While potential risks exist, the long-term growth potential and strategic advantages make Udemy a compelling investment opportunity.
DISCLAIMER
You should read and understand this disclaimer in its entirety before joining or viewing the website or email/blog list of SmallCapStocks.com (the “Publisher”). The information (collectively the “Advertisement”) disseminated by email, text or other method by the Publisher including this publication is a paid commercial advertisement and should not be relied upon for making an investment decision or any other purpose. The Publisher is engaged in the business of marketing and advertising the securities of publicly traded companies in exchange for compensation. The track record, gains, upside, and/or losses mentioned in the Advertisement, if any, should not be considered as true or accurate or be the basis for an investment. The Publisher does not verify the accuracy or completeness of any information included in the Advertisement. While the Publisher does not charge for the SMS service, standard carrier message and data rates may apply. To unsubscribe from receiving promotional text messages to your phone sent via an autodialer, using your phone reply to the sender’s phone number with the word STOP or HELP for help.
The Advertisement is not a solicitation or recommendation to buy securities of the advertised company. An offer to buy or sell securities can be made only by a disclosure document that complies with applicable securities laws and only in the states or other jurisdictions in which the security is eligible for sale. The Advertisement is not a disclosure document. The Advertisement is only a favorable snapshot of unverified information about the advertised company. An investor considering purchasing the securities, should always do so only with the assistance of his legal, tax and investment advisors. Investors should review with his or her investment advisor, tax advisor or attorney, if and to the extent available, any information concerning a potential investment at the web sites of the U.S. Securities and Exchange Commission (the "SEC") at www.sec.gov; the Financial Industry Regulatory Authority (the "FINRA") at www.FINRA.org, and relevant State Securities Administrator website and the OTC Markets website at www.otcmarkets.com. The Publisher cautions investors to read the SEC advisory to investors concerning Internet Stock Fraud at www.sec.gov/consumer/cyberfr.htm, as well as related information published by the FINRA on how to invest carefully. Investors are responsible for verifying all information in the Advertisement. As an advertiser, we do not verify any information we publish. The Advertisement should not be considered true or complete.
The Publisher does not offer investment advice or analysis, and the Publisher further urges you to consult your own independent tax, business, financial and investment advisors concerning any investment you make in securities particularly those quoted on the OTC Markets. Investing in securities is highly speculative and carries an extremely high degree of risk. You could lose your entire investment if you invest in any company mentioned in the Advertisement. You acknowledge that we are not an investment advisory service, a broker-dealer or an investment adviser and we are not qualified to act as such. You acknowledge that you will consult with your own independent, tax, financial and/or legal advisers regarding any decisions as to any company mentioned here. We have not determined if the Advertisement is accurate, correct or truthful. The Advertisement is compiled from publicly available information, which include, but are not limited to, no cost online research, magazines, newspapers, reports filed with the SEC or information furnished by way of press releases. Because all information relied upon by us in preparing an advertisement about an issuer comes from a public source, it is not reliable, and you should not assume it is accurate or complete.
By your subscription to our profiles, the viewing of this profile and/or use of our website, you have agreed and acknowledged the terms of our full disclaimer and privacy policy which can be viewed at the following link: www.SmallCapStocks.com/Disclaimer and www.SmallCapStocks.com/Privacy-Policy
By accepting the Advertisement, you agree and acknowledge that any hyperlinks to the website of (1) a client company, (2) the party issuing or preparing the information for the company, or (3) other information contained in the Advertisement is provided only for your reference and convenience. The advertiser is not responsible for the accuracy or reliability of these external sites, nor is it responsible for the content, opinions, products or other materials on external sites or information sources. If you use, act upon or make decisions in reliance on information contained in any disseminated report/release or any hyperlink, you do so at your own risk and agree to hold us, our officers, directors, shareholders, affiliates and agents harmless. You acknowledge that you are not relying on the Publisher, and we are not liable for, any actions taken by you based on any information contained in any disseminated email or hyperlink.
![Dean McHugh](https://smallcapstocks.com/wp-content/uploads/2024/02/Copy-of-17062790700923813437120481330703-150x150.jpg)
Dean is a freelance content writer who contributes to various Digital Media Companies and independent websites all over the world. He has over 20 years of financial industry experience, so it’s safe to say he’s well informed.