Udemy, an 11-year-old platform for online classes, went public on the Nasdaq today. Its shares, which opened at $29, fell 5% in the first day of trading to $27.50, valuing the company at $3.7 billion.
The subject of two Forbes feature stories in June 2020, Udemy hosts unaccredited courses taught by instructors who create their own pre-recorded content. The company shares revenue for the courses, which cost an average of $11, with instructors. Udemy used to give instructors as much as 50% of revenue but recently cut that to 37%.
Forbes described how a few hundred of Udemy’s 65,000 instructors earned six figures or more. Some make as much as $1 million a year.
The company’s back 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 launch an online learning startup in Turkey flopped, a Silicon Valley dating site recruited him as an engineer.
Together with two cofounders he bootstrapped Udemy (the name is a portmanteau of “you” and “academy”) in San Francisco in 2010 after more than 200 funders turned them down.
Pandemic lockdowns were a boon for online learning. Udemy’s enrollments soared and in November, investors pumped in $50 million, valuing the company at $3.25 billion. That brought total capital invested to more than $300 million.
But when Udemy’s IPO filing posted 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 revenue to achieve or maintain profitability in the future,” says the “risk factors” section of the S-1 SEC filing. Despite the glut of customers signing up for sourdough bread baking and guitar lessons in 2020, annual losses increased to nearly $77 million in 2020. The company’s deficit: $408 million.
Last year, CEO Gregg Coccari told Forbes that Udemy would be profitable if it weren’t spending so much on expansion. But its filing suggests otherwise. Udemy spends $1.20 for every dollar of revenue it logs.
“It’s like the Polish farmer joke,” says ed tech investor Daniel Pianko, who passed on a Udemy stake years ago. “The farmer goes home to his wife and says, ‘I made nine zloties selling my wheat.’ The wife slaps him across the face and says, ‘It cost us 10 zloties to grow the wheat.’ And the farmer says, ‘But I sold a lot of it.’”
Still, Pianko sees promise in Udemy’s enterprise business. It sells annual subscriptions for $360 per employee. Popular courses include how to write more effective business emails and how to communicate with a team.
That business is more profitable than the consumer division because instructors get a smaller cut of revenue, just 25%. Subscription revenue also requires less marketing to keep it running. That business is growing fast and accounted for 30% of Udemy’s 2020 revenue of $430 million.
Udemy is also testing a subscription model for consumers, priced at $20 to $30 a month, that would give customers unlimited access to 5,000 courses.
Speaking on the phone from a Times Square hotel this afternoon, CEO Coccari sounded weary but relieved. “It’s nice to get to the finish line,” he said. About the slipping stock price he said, “The IPO market is squishy. We’re a long-term player.”
How long until Udemy turns a profit? “We’re not allowed to discuss that sort of thing,” he said. “I don’t want to break the rules the first day I’m a public company.”
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