Coursera's (COUR 4.14%) stock sank 17% on July 28 after the online education company posted its second-quarter report. Its revenue rose 22% year over year to $124.8 million, but missed analysts' expectations by $6.2 million. Its net loss widened from $46.4 million to $49.3 million, or $0.34 per share, which also missed the consensus forecast by $0.03. Its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) loss widened from $2.9 million to $15.6 million.
Those headline numbers were ugly, but its outlook was even uglier. It expects its revenue to only rise 15% to 30% year over year in the third quarter, and grow 23% to 24% for the full year. That was a big reduction from its previous full-year guidance for revenue growth of 30% to 32%.
Image source: Getty Images.
To top it off, Coursera expects its adjusted EBITDA losses to widen year over year in both the third quarter and the full year. It wasn't surprising to see Coursera's stock crash and burn after that dismal report, but did the market overreact and create a fresh buying opportunity for long-term investors?
What does Coursera do?
Coursera provides thousands of online courses from over 275 universities, and its students can earn technical certifications as well as full degrees. The company went public last March at $33 per share, started trading at $39, and hit an all-time high of $58 in early April. But today, Coursera's stock only trades at about $13. The bulls retreated for three simple reasons.
NYSE: COUR
Key Data Points
First, Coursera's valuations got overheated. At its peak, it had a market cap of $7.6 billion -- or 18 times the sales it would generate in 2021. That frothy valuation made it an easy target for bears as interest rates rose.
Second, Coursera has never generated a profit since its inception a decade ago. All that red ink made its stock even less appealing as rising interest rates punished unprofitable companies and made it tougher to raise fresh capital.
Lastly, Coursera's growth had accelerated during the pandemic as more students attended online classes -- but gradually decelerated as lockdown measures ended.
How bad was Coursera's slowdown?
Coursera splits its business into three segments:
- The consumer segment (56% of its second-quarter revenue) provides online classes, degrees, and professional certifications.
- The enterprise segment (35% of revenue) develops online tests for business, government, and campus customers.
- The degrees segment (9% of revenue) earns fees from its university partners based on each degree-earning student's tuition payments.
Here's how those three businesses fared over the past year:
|
Segment Growth (YOY) |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
Q2 2022 |
|---|---|---|---|---|---|
|
Consumer revenue growth |
23% |
16% |
24% |
31% |
12% |
|
Enterprise revenue growth |
69% |
75% |
72% |
59% |
55% |
|
Degrees revenue growth |
78% |
59% |
43% |
11% |
4% |
|
Total revenue growth |
38% |
33% |
38% |
36% |
22% |
Data source: Coursera. YOY = year over year.
In the second quarter, the growth of Coursera's consumer-facing business decelerated significantly as it grappled with weaker conversion rates in overseas markets. During the earnings conference call, CEO Jeffrey Maggioncalda also blamed the segment's slowdown on the "negative impact from several pricing and payment-related tests" it conducted in international markets.
As for the degrees business, Maggioncalda attributed its abrupt slowdown to "lower-than-expected" student enrollments in "mature U.S. and European degree programs." The only bright spot was the enterprise business, which grew its customer base by 64% year over year to 958 during the quarter.
All three businesses are still expanding
Coursera's slowing revenue growth is worrisome, but all three of its businesses continue to gain more learners, customers, and degree students both sequentially and year over year:
|
Customers by Segment |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
Q2 2022 |
|---|---|---|---|---|---|
|
Consumer learners |
87 million |
92 million |
97 million |
102 million |
107 million |
|
Enterprise customers |
584 |
711 |
803 |
917 |
958 |
|
Degree students |
14,630 |
16,068 |
16,204 |
16,481 |
17,460 |
Data source: Coursera.
Furthermore, the gross margins of its consumer and enterprise segments both expanded significantly year over year in the second quarter. (The degrees segment's gross margins remain at 100% because it doesn't incur any costs in collecting fees from its university partners.)
|
Selected Gross Margins |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
Q2 2022 |
|---|---|---|---|---|---|
|
Consumer gross margin |
66% |
68% |
69% |
71% |
73% |
|
Enterprise gross margin |
67% |
67% |
68% |
72% |
71% |
Data source: Coursera.
But Coursera can't solve its biggest problem
Coursera's business isn't collapsing, and its stock no longer seems overvalued at four times this year's sales. But it won't catch a break as long as its growth is cooling off and its losses widen.
As a result, Coursera's stock could still get a lot cheaper. For reference, its industry peer 2U (TWOU +0.00%) -- which is growing at a slower rate and also sinking in red ink -- still trades at less than one time this year's estimated revenue, even after reportedly attracting a few buyout bids.
Coursera's stock might eventually stabilize, but I don't think it will rebound to the price at its initial public offering anytime soon. Therefore, investors should stick with more resilient stocks to ride out this challenging market.
