The stock market's strong showing over the past year encouraged a tidal wave of initial public offerings (IPOs). Online learning platform Coursera (COUR +2.52%) was among the recent entrants. Its stock rocketed from an IPO price of $33 per share to a 52-week high of $62.53 about a week after its March 31 debut.
Coursera stock has since pulled back, and hovers around $42 at the time of this writing. The company experienced tremendous growth last year. But does Coursera make for a compelling long-term investment? A look into this e-learning company provides an answer.
Image source: Getty Images.
Strong revenue growth
One of Coursera's advantages is that it operates in the high-growth online education industry. Forecasts predict the global e-learning market will expand from 2019's $101 billion to more than $370 billion by 2026.
The pandemic helped accelerate this market growth. Last year, Coursera saw a boost to its revenue and registered users (whom it calls learners) as more people and institutions turned to online learning as a solution to pandemic-related stay-at-home restrictions.
Coursera's 2020 revenue rose 59% year over year to reach $293.5 million, nearly double 2019's 30% year-over-year growth. Last year's outsize results continued into the first quarter of 2021.
The company reached $88.4 million in revenue, a 64% increase from 2019's $53.8 million. But CFO Ken Hahn warned during the company's first-quarter earnings call that second-quarter results "will begin to lap difficult compares from the onset of the COVID-19 pandemic."
Coursera generates revenue from three sources: individual consumers, enterprise customers, and its degree program. Consumers and enterprise clients pay a monthly subscription fee for access to the company's learning platform and its slew of courses, although the former can make one-time purchases for individual classes. The degree segment involves the company collecting fees from educational institutions using Coursera's platform to offer online learning.
Equally strong user growth
Coursera's revenue growth was fueled by a meteoric rise in learners. The company had 81.5 million registered learners at the end of the first quarter, a 56% year-over-year increase from last year's 52.4 million.
The pandemic's impact to Coursera's user growth is apparent when comparing last year to pre-pandemic years.
| Fiscal Year | Registered Learners | YOY Growth |
|---|---|---|
| 2020 | 76.6 million | 65.1% |
| 2019 | 46.4 million | 24.4% |
| 2018 | 37.3 million | 23.9% |
Data source: Coursera. YOY = year over year.
Prior to the pandemic, Coursera's user growth was steady, but not the explosion experienced last year and in the first quarter of this year. It'll take a few quarters to know whether the company can continue its strong growth as pandemic-related restrictions recede.
The company's ability to attract and retain learners will determine its success. If consumer interest wanes over time, Coursera will struggle. Currently, most of the company's revenue and gross profit come from its consumer segment.
| Segment | Q1 Revenue | Q1 Gross Profit |
|---|---|---|
| Consumer | $51.9 million | $29.7 million |
| Enterprise | $24.5 million | $16.6 million |
| Degree | $12.0 million | $12.0 million |
Data source: Coursera.
Note that Coursera's degree segment is all profit since course content is provided by the educational institution using the platform. If Coursera can grow this segment into a larger percentage of revenue, the company might have compelling financials on its hands.
This year, Coursera expects to continue growing, albeit at a much lower rate than 2020. The company's 2021 full-year outlook calls for revenue of at least $369 million. That's about a 26% increase from 2020, which is good, but a far cry from the 59% growth Coursera enjoyed last year.
The final verdict
At this point, Coursera is all about growth. Like many tech companies, it isn't profitable yet because it pours income into building its business.
The company suffered a net loss of $18.7 million in the first quarter, larger than the prior year's $14.3 million net loss. But its balance sheet is otherwise solid. It exited the first quarter with $414.8 million in total assets compared to $178.6 million in total liabilities. Coursera also possessed $158.1 million in first-quarter cash and equivalents, nearly double the $79.9 million it had at the end of 2020.
So despite the lack of profitability, Coursera is financially healthy. Its biggest challenge right now is that it's faced with a year of transition as its customer base moves further away from pandemic-induced restrictions. The second quarter will provide some insight into the impact on the business.
Given its healthy balance sheet and continued growth prospects, Coursera is one to watch. Its second-quarter results will help determine if it's one to buy. For now, it's best to wait and see how its business is affected by this next stage of the pandemic, and the resulting changes in customer behavior.
