Udemy Inc IPO is going to be filed by the company for a valuation of $406 million. The company operates an online learning platform for business users and consumers all over the world. The company is positioned well with global offerings to utilize fast-growing online learning choices. So, the Udemy Inc IPO is worth considering. The valuation of the Udemy Inc IPO has been received from an S-1/A registration statement. The company is based in San Francisco, California. It was founded to create a platform for employees and consumers to take courses in a number of languages from various teachers. The management is headed by Chairperson, CEO, and president Gregg Coccari. He has been with the company for the past three years and was previously the Chief Executive Officer of Stella & Chewy’s, a pet food company.
The company’s primary offerings are Udemy and Udemy Business. The firm has got at least $415 million in equity investment from investors, including Stripes III, Norwest Venture Partners, MIH Edtech Investments, and Insight Partners.
The company has a two-sided marketplace that connects education consumers with teachers who create content to meet business user and consumer demand. The firms’ system gives more than 45 million learners access to nearly 180,000 courses in 180 nations and more than 70 languages. The marketing and sales expenses as a percentage of total revenue have decreased as revenues have grown. The marketing and sales efficiency rate is defined as how many dollars of extra new revenue is obtained by each dollar of marketing and sales spend. It decreased to 0.5x in the latest reporting period. The rule of 40 is a rule of thumb in the software industry that states that as long as the combined EBITDA percentage rate and the revenue growth rate are equal or more than 40%, the company is on a good EBITDA or growth path.
The company is not a software company per se. But the company’s latest calculation was 14% nearly six months ago. So, Udemy has to make some improvements in this area. Looking at the company’s website traffic trends by deduplicated audience size, there has been great growth at the beginning of last year. There has been a net flat result this year since the beginning.
According to a research report by Global Market Insights this year, the international market for e-learning was more than $250 billion last year. It will reach nearly $950 billion in the next six years. This shows a forecast compound annual growth rate of 21% in the next six years. The major factors for this expected growth are an increasing desire by people of all ages to increase their knowledge. There is a growing incidence of new tech to aid in learning processes, including cloud-based learning management systems, virtual reality, and artificial intelligence. The major rivals or industry participants include Skillshare, A Cloud Guru, edX, Coursera, LinkedIn Learning, Skillsoft, and Pluralsight.
The firm’s recent financial results show that there is increasing topline revenue. There has been a growing gross margin and gross profit. The operating loss has reduced in the first half of this year. There has been an increase in the cash used in operations in the first half of this year. As of June of this year, the company has $279.2 million in total liabilities and $163.2 million in cash. The free cash flow during the period ended one year to June was negative at $26.4 million. As shown from share sale data, the firm’s private market valuation history shows a great increase in value this year. The value increased to $6 billion in May from $3.7 billion in February.
The company wants to raise $406 million in gross proceeds from the Udemy Inc IPO of its common stock. It is going to give 14.5 million shares at a midpoint price of $28 per share. Potential investor Caledonia Investments has shown a non-binding interest to buy shares of up to $75 million at the IPO price. If the Udemy Inc IPO is successful, the firm’s enterprise value at IPO would be around $3.3 billion. This excludes the effects of underwriter over-allotment options. Leaving out effects of restricted stock, private placement shares, or underwriter options, the float to outstanding shares ratio will be nearly 10.55%. Any value under 10% is seen as a low float stock that can experience great price volatility. The listed bookrunners of the Udemy Inc IPO are JP Morgan, Morgan Stanley, and other investment banks.
The management wants to use the proceeds from the Udemy Inc IPO as follows, “We intend to use the net proceeds we receive from this offering for general corporate purposes, including working capital, operating expenses, and capital expenditures. Additionally, we may use a portion of the net proceeds we receive from this offering to acquire or invest in businesses, products, services, or technologies. However, we do not have agreements or commitments for any material acquisitions or investments at this time. We cannot specify with certainty the particular uses of the net proceeds that we will receive from this offering.”
Regarding any outstanding legal proceedings, the company is the subject of a putative class action complaint in the state of California. The company says, “alleging violations of California’s unfair competition and false advertising statutes as well as the California Consumer Legal Remedies Act in connection with the promotional strike-through pricing for courses offered on our platform, alleging that the reference prices used for comparison purposes are false or misleading. The complaint seeks injunctive relief, unspecified damages, restitution, and disgorgement of profits. We are in the process of investigating the claims alleged in the complaint and have not yet answered. We intend to defend ourselves in this matter vigorously.”
Should You Consider Udemy Inc IPO?
The company is looking for public market investment for unspecified corporate purposes. The company’s financials represent lowering operating loss, gross margin, increasing gross profit, and growing topline revenue in the first half of this year. But there has been a wing to cash used in operation in the initial part of this year. The free cash flow for the one year ended June of this year was negative. The marketing and sales expense as a percentage of total revenue has declined as revenue has grown. The marketing and sales efficiency rate has declined in the latest six-month reporting period. The market opportunity for e-learning is huge and is predicted to grow at a very high rate in the coming years. So the company enjoys high industry growth dynamics in its favor.
Morgan Stanley is the lead underwriter of Udemy Inc IPO. Over the last year, the IPO underwritten by the company has given a usual return of 14.5%. This is a satisfactory performance for all the major underwriters during this time. As for a valuation, when compared to e-learning rival Coursera, the company is increasing revenue at a lower growth rate but is looking for nearly similar revenue multiples when averaged. It can be seen that private secondary market values between buyers and shareholders have recently touched $6 billion in their valuation. This is much higher than the enterprise value at Udemy Inc IPO or proposed market capitalization.
Usually, we favor the online learning market because of its future growth prospects. There is a lot of space for many rivals to grow steadily throughout the globe in the time to come. The company looks well-positioned with foreign language support and significant global operations to take advantage of the online learning space. So, it is worth taking a look at the Udemy Inc IPO.