Shares of Udemy (UDMY 2.73%) charged sharply higher Friday, soaring as much as 40.1%. As of 10:50 a.m. ET, the stock was still up 37.4%.
The catalyst that sent the online learning platform surging was its robust financial report, which blew past even the most bullish expectations. The company also announced an important change to its business model that will boost future results.
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Why investors cheered Udemy's results
For the third quarter, Udemy generated revenue that grew 17% year over year to $184.7 million, despite a 1% hit from foreign currency exchange rates. This easily exceeded both the high end of management's guidance and analysts' consensus estimates, which clocked in at $180 million and $178.2 million, respectively. Helping fuel the results was a strong performance by Udemy Business -- the company's enterprise segment -- which grew 30% to $109.1 million.
Stronger top-line growth fueled Udemy's bottom line, as adjusted earnings per share (EPS) of $0.05 sailed past expectations for a loss of $0.02. Furthermore, the company generated its second consecutive quarter of positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and free cash flow, and revealed that it expects its first full year of positive adjusted EBITDA in 2023, ahead of management's previously announced goal.
Perhaps the biggest news was the company's decision to adjust the payment structure of its Udemy business and consumer subscription offerings. The company currently pays instructors 25% of subscription revenue based on consumption. Beginning in January 2024, that will drop to 20%, which management says will "improve future gross margin, which will allow the Company to make greater investments in brand initiatives and product innovation to accelerate growth in the business."
Here's why Udemy stock could finally be a buy
This could be the beginning of a broader long-term recovery for Udemy, which -- even after today's big move -- remains 60% off its late-2021 post-IPO high.
As a result of the company's robust performance, management raised the company's full-year guidance. Udemy now expects revenue of roughly $725 million at the midpoint of its guidance, up from its previous forecast of $716 million.
With the combination of accelerating revenue growth, improving profitability, and management's announced pay structure changes, Udemy is much more attractive than it was just days ago. Furthermore, at just 2 times forward sales, the stock is a bargain, particularly since Udemy is on the road to recovery.
