Questions from the Road

We get a lot of questions from investors. If a question comes up frequently, it is fair to assume it is on the minds of even more investors. With that in mind, we plan to use this IR Blog to post frequently asked questions and our responses. 

Why aren’t we seeing more top line growth from the Consumer segment? 

Udemy is fundamentally different from any other EdTech platform. We believe Udemy is the next-generation learning platform with a primary focus on supporting professional skills development. Udemy is unique in that we have a fast growing enterprise SaaS business that was built on top of a powerful and efficient content generation engine, which is our consumer marketplace. The Udemy learning platform consists of more than 200,000 courses on nearly any topic, with new content being added or existing content being updated daily, in more than 75 native languages.

The Consumer marketplace is our ‘crown jewel’ in that it serves as a content creation engine for Udemy Business. It is important to understand that what matters most is that the marketplace remains vibrant and that courses are constantly created and updated to remain current with the pace of change.  We are not investing to drive revenue growth in the Consumer segment.

At the time of our IPO Udemy Business, our Enterprise segment, accounted for approximately 35% of our total revenue mix. Today, Udemy Business revenue accounts for more than 50% of the mix. We expect that to grow to approximately 60% this year and our long-term target is 75%+. 

We have strategically shifted spend to further invest in Udemy Business, which is our main growth engine. In 2022, we grew Udemy Business revenue by nearly 70% and we guided to mid-30s growth this year*. That is impressive growth, given the current macroeconomic environment. There are only a handful of other software companies delivering growth rates like that today.

*Guidance as of February 14, 2023

What metrics do you monitor to determine ‘vibrancy’ of the consumer marketplace?

We closely monitor three metrics to measure the vibrancy of our marketplace, including:

• Traffic – We attract more than 35M monthly average visits to Udemy.com, representing a massive opportunity to increase conversion, particularly as we invest in AI and personalization.
• Course creation – Nearly 5,000 courses are added each month to Udemy’s marketplace. In 4Q22, more than 1,900 top rated courses were curated into the Udemy Business course catalog.
• Instructor payments – Last year, we paid nearly $190M in instructor content creation fees. That was an increase of nearly 10% from the prior year. When instructors experience that kind of growth in earnings, they are well-incentivized to create new content and update existing content to keep it fresh and drive further engagement. This also supports retention as instructors are likely to stay with Udemy to continue building their business. In fact, more than 80% of revenue comes from courses where an instructor is monetizing both sides of our unique platform. The value proposition for instructors on Udemy is unmatched.

Note: Data as of 4Q22.

What are the drivers and levers you anticipate for achieving your long-term revenue and adjusted EBITDA targets?

As we scale this business globally, the revenue growth opportunity for Udemy is massive. Top-line growth over the long-term will be driven by:

• Increasing Udemy Business penetration via proven land-and-expand strategy
  • 10% seat penetration of existing customer base today
  • $2B revenue opportunity to expand with existing customer base (assuming 50% penetration achieved)
• Further international expansion and localization
• Enhancing learning experiences and introducing new modalities
• New product adoption (i.e. UPro and Leadership Academy)
• Growing brand awareness globally
• Price optimization

As Udemy Business revenue continues to grow as a percent of total revenue, we expect to see expansion in our gross margin due to lower content costs and we also plan to launch innovative, higher margin products over time. Other OpEx levers include:

• Improvement in S&M efficiency as we scale and slow the pace of growth in our go-to-market team.  
• Efficiency from selling more products into existing customers and larger deal sizes.
• Leverage in our R&D investments as we have built our platform to be API-first. This allows us to accelerate deployment of new product innovations into both our first party web and native applications, and into third party integrations and ecosystems partnerships. We also continue to build out our lower cost, highly effective overseas teams.
• Near term leverage on our G&A spend as we continue to put systems and processes in place that allow us to scale efficiently.

Can you provide an update on Udemy’s Consumer subscription offering?

Launching a consumer subscription offering is an important initiative for Udemy. We are currently testing in 14 countries and are seeing a positive uptick in trial starts. While we remain committed to launching a subscription plan globally, we are doing so with a methodical approach. We must carefully ensure the offering provides enhanced value for learners. Equally as important, we must ensure that our instructors understand and appreciate the value it provides to them and how it impacts their business.

Given current valuations, how are you thinking about M&A?

Udemy ended 2022 with a healthy balance sheet, including $465 million of unrestricted cash, cash equivalents, and marketable securities. An acquisition may be interesting if we can bring on more advanced technology quicker, broaden our current solutions, or reach new markets. We have made strategic acquisitions in the past, including CorpU, which is our leadership cohort-based learning solution that we acquired in August 2021. CorpU enhanced our corporate learning offerings by adding new capabilities, such as personalized coaching, collaboration tools, and leadership development programs. The acquisition also gave us access to a new customer base of Fortune 500 companies and allowed us to quickly expand our presence in the corporate L&D market. We will continue to look at opportunities that could further advance technology and support global scaling.

How will the emergence and adoption of AI tools, such as ChatGPT, impact Udemy’s business longer term? 

Right now, the market is evolving rapidly and when these new technologies launch, they’re in high demand. Udemy’s ability to keep pace with change and deliver content as innovation happens is a key competitive advantage for us. For the last 10 months, we have been researching ways in which we can leverage AI to enhance the power of instructors to develop effective learning solutions more efficiently. We expect to introduce new tools in the near term that enhance instructors’ capabilities to accelerate content creation and increase personalization across different modalities that ultimately improve the learning experience on Udemy. We believe leveraging technology like ChatGPT will be a powerful tool for helping more instructors succeed on our platform.