Udemy IPO: Valuation Targets $4 Billion

Udemy Announces Initial IPO Price Range

Udemy, the online learning platform, has today announced the preliminary price range for its initial public offering (IPO).

IPO Details and Valuation

The San Francisco-based company, classified as an edtech unicorn, is aiming to price its shares between $27 and $29 each.

At the higher end of this range, Udemy’s valuation could exceed $4 billion.

This represents a relatively small increase in valuation compared to its previous funding round in November, where the company was valued at $3.32 billion after raising $50 million.

A Busy Year for Edtech IPOs

Udemy’s planned IPO arrives during a period of significant activity in the edtech sector.

Several other companies in the education technology space have already gone public this year.

These include Duolingo, a language learning platform, Nerdy, a tutoring marketplace, and PowerSchool, an edtech software provider.

Quizlet is also potentially considering an IPO.

Analyzing Udemy’s Potential Public Value

A closer examination of Udemy’s IPO price range is necessary to understand its potential market capitalization.

Furthermore, reviewing preliminary financial figures for the third quarter can provide insights into current edtech valuations.

These numbers will help to contextualize the overall trends within the industry.

Udemy’s Potential IPO Valuation

Udemy is offering 14,500,000 shares to the public through its initial public offering (IPO). An additional 2,175,000 shares have been allocated to underwriters, contingent upon their decision to acquire them.

Following the IPO, the total number of outstanding shares will reach 139,602,466, factoring in the underwriters’ option. Based on the current IPO price range of $27 to $29 per share, Udemy’s valuation is projected to be between $3.77 billion and $4.05 billion.

Fully Diluted Valuation

Considering a fully diluted valuation, which accounts for unexercised stock options, Udemy’s worth increases. Renaissance Capital, a firm specializing in IPO analysis, estimates the edtech company’s value at $4.3 billion, using the midpoint of the IPO price – $28 per share.

A simple calculation reveals a fully diluted valuation of $4.45 billion at the higher end of the company’s proposed price range.

These valuations represent a significant increase compared to Udemy’s last private valuation. The company was valued at $3.25 billion during a $50 million Series F funding round in late 2020, according to data from Crunchbase.

Valuation Growth

This indicates substantial growth in the company’s perceived value since its last private funding round. The IPO represents a key milestone for Udemy.

Stock options and potential underwriter purchases contribute to the difference between the basic and fully diluted valuations.

Evaluating Udemy’s Financial Projections

Udemy’s recent S-1/A filing revealed its financial performance for the first nine months of 2021. This represents an update from the initial filing, which only contained data up to the second quarter of the year.

Revenue Breakdown

The data indicates that Udemy’s consumer revenue has remained stable compared to the previous year. However, its business revenue has experienced significant expansion. This observation aligns with our previous analysis of the company’s first IPO filing, where we highlighted the increasing significance of its enterprise revenue stream.

First Half 2021 Performance

Udemy previously reported total revenue of $250.6 million for the first half of 2021. Consequently, the company generated between $125.7 million and $130.9 million in revenue during the third quarter, a figure that is still being finalized.

Q3 2021 Revenue Analysis

With Q2 2021 revenues reported at $126.1 million, Udemy’s Q3 revenue appears to be either slightly below or marginally above that amount. Year-over-year growth for Q3 is projected to be between 6.1% and 10.5%, based on the prior year’s Q3 revenue of $118.4 million. These growth rates are not particularly strong.

Valuation Metrics

Based on the company’s estimated share price of $29 and a fully diluted valuation of $4.45 billion, alongside the higher Q3 2021 revenue estimate, a run rate of $523.6 million can be calculated. This results in a revenue multiple of 8.7x for the company.

Interpreting the Multiple

Considering the company’s modest growth rates, this multiple isn’t excessively high. Investors anticipating continued growth in the enterprise segment might view it as attractive. Conversely, those less optimistic about the corporate education market may consider it elevated.

Final Assessment

Currently, we are not making any predictions regarding whether Udemy will adjust its pricing range or finalize its IPO within the currently stated parameters.

The Implications of Udemy's Performance

The deceleration in Udemy’s revenue expansion does not present a favorable outlook for valuations within the broader edtech sector. Furthermore, the company’s current revenue multiple appears unremarkable.

A key challenge for Udemy will be demonstrating to prospective investors that its encouraging growth within the enterprise segment represents only a small fraction of its potential. While the impact of digitization and the need for workforce reskilling are widely acknowledged, some stakeholders may require convincing that enterprise edtech provides effective solutions to address emerging skill deficiencies.

Lessons from Pluralsight

The case of Pluralsight offers a relevant comparison. The Utah-based company initially launched on the public market two years prior, focusing on providing online courses for upskilling technology professionals. However, Pluralsight subsequently transitioned off the stock market through a $3.5 billion acquisition by Vista, representing a significant enterprise-level transaction and reducing the number of publicly traded edtech firms.

Interestingly, edtech investors largely interpreted Pluralsight’s complex exit as a positive development for the industry. It was seen as evidence of diverse liquidity options available. Consequently, continued investment is flowing into private companies focused on workforce reskilling initiatives.

The Future of Training

Ashley Bittner of Firework Ventures previously suggested a shift towards “job-embedded” training, rather than solely relying on external hiring to address skill gaps. She anticipates that external resources will increasingly fill internal training voids, with a substantial portion of this training delivered online.

This trend is driving investments in companies like Hone, TransfrVR, and Praxis Labs. Guild Education also recently secured $150 million in funding, achieving a $3.75 billion valuation.

Further updates will be provided as Udemy’s IPO date approaches or if a revised price range is announced for its initial public offering.