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Udemy IPO: what you need to know
Udemy’s business model overview
Creating and maintaining unique content
Providing affordable, relevant and up-to-date content
Growing digitalisation in learning
Udemy targets more growth outside North America
Investment risks
Udemy Inc, the California-based developer of a highly popular online education platform, will be going public this week, aiming to raise $406m to support its existing operation and for further investments.
Ahead of the listing, let’s look at the latest Udemy’s IPO news and analyse the company’s business model, revenue and growth strategy to help you better navigate the listing.
When is the Udemy IPO date in 2021? According to the Nasdaq’s listing calendar, the IPO is scheduled for 29 October.
The company has filed for an initial public offering (IPO) on the Nasdaq. Shares will be listed under the ticker symbol “UDMY”. The business plans to sell 14.5 million shares. Udemy’s IPO price range is set at $27–$29.
The Udemy valuation is expected to be between $3.77bn and $4.05bn if the outstanding 139,602,466 shares (including its underwriters’ options) are sold at its targeted range.
“Udemy appears well positioned with significant international operations and foreign language support to take advantage of a global shift toward online learning, so the IPO is worth a close look,” said analyst Donovan Jones on Seeking Alpha.
According to Udemy (UDMY)’s United States Securities and Exchange Commission (SEC) registration statement, “the principal purposes of this offering are to obtain additional capital to support our operations, establish a public market for our common stock and facilitate our future access to the public capital markets”.
The firm may also use a portion of the net proceeds to acquire or invest in businesses, products, services or technologies. As it has no agreements or commitments for any material acquisitions or investments, it could not specify the particular uses for the net proceeds.
However, Udemy said it will exercise broad discretion in using these net proceeds and it intends to invest the funds “primarily in short- and intermediate-term, interest-bearing obligations, investment-grade instruments, certificates of deposit, or direct or guaranteed obligations of the US government”.
Udemy offers online learning on its digital platform to consumers and businesses worldwide. According to the SEC filing, its platform provides over 44 million learners with access to over 183,000 courses in 75 languages and over 180 countries. Since its inception in 2010, more than 73 million users have registered with Udemy.
The firm operates a two-sided marketplace for consumers and businesses. Consumers can access content directly on Udemy’s website (its direct-to-consumer offering), while corporate customers are directed through Udemy Business (UB).
The direct-to-consumer subscription service was launched only in early 2021 and is currently still in beta testing. In contrast, the UB segment has been in operation since 2015.
Udemy charges either a subscription or one-off fee for access to the content on its platform.
According to the firm, its courses “address learning objectives such as reskilling or upskilling in technology and business, enhancing soft skills and personal development”.
By analysing user behaviour data on its platform, Udemy can assess learners’ needs and match individuals with relevant courses, providing a more personalised experience within UB.
The company said: “Our learners also receive access to interactive learning tools such as quizzes, exercises and instructor questions-and-answers, or Q&A.”
Udemy offers instructors proprietary tools including marketplace insights, the ability to review feedback from learners, and dashboards to help generate more relevant content and manage their brands and course marketing.
The company has an exclusive distribution agreement with its instructors when they provide content for UB and consumer subscription. This has enabled Udemy to offer unique content on its platform.
As a result of this arrangement, Udemy claimed that it “experienced minimal turnover among top instructors in 2019, 2020 and the six months ended 30 June 2021”.
Udemy believes that “online education can address the rising demand for lifelong learning in the rapidly evolving world economy, a development that would expand our market opportunity to include the majority of the global adult population”.
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The company said its platform can overcome the shortcomings of traditional learnings, which often rely on a top-down publisher model involving lengthy, centralised and expensive development processes by multiple levels of editors and reviewers.
In addition, Udemy said that traditional learning solutions also lack content breadth as they often focus on a few popular learning areas because of the time and cost constraint.
Other shortcomings include a lack of quality indicators, limited scalability and affordability.
The Covid-19 pandemic led to the mass shutdown of offices and schools across the world in 2020, which significantly increased the demand for online learning. Although restrictions have been lifted in most countries, Udemy believes the online learning trend could continue over the long term.
The company cited in its prospectus:
In the meantime, despite rising revenues, Udemy’s high operating expenses and cost of revenues kept the company’s finances in the red.
Revenue in the first half of this year rose to $250.6m, up 24.5% from the same time last year, while the cost of revenues declined year on year.
Content costs incurred by Udemy, in the form of payments to its instructors, make up the largest part of its cost of revenues. According to the company, payment to instructors is generally determined as a percentage of total revenue generated from their content.
Over the past two years, content costs have fluctuated according to sales in the consumer and UB segments. Content costs for the UB segment are lower than the consumer segment. 
In 2019 and 2020, 59% and 61% respectively of Udemy’s revenue was generated outside North America, and sales outside the region continued to grow in 2021.
For the six months ended 30 June 2020 and 2021, revenue outside North America was at 60% and 61%, respectively.
The company said:
Udemy believes that cloud-based technology is becoming increasingly critical to business operations. The company claimed that it is the market-leader in this area and that the usage of its integrated enterprise-grade platform and customer base are expected to increase. It added:
Udemy warned that it has “a history of losses, and it may not be able to generate sufficient revenue to achieve or maintain profitability in the future”.
The company is relatively young, commencing operations in 2010. And the market for online learning itself is also relatively new and dynamic. As a result, it may be difficult to accurately assess the future risks, challenges and uncertainties that Udemy may encounter in the future.
As per the S-1 filing, the potential risks and challenges include:
Note that this article does not constitute financial or investment advice. Before investing in any company, always do your own research and remember that your decision should be based on your attitude to risk, your expertise in this market and the spread of your portfolio. Never invest more than you can afford to lose.
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