After TechCrunch broke the news yesterday that Coursera was planning to file its S-1 today, the edtech company officially dropped the document Friday evening.
Coursera was last valued at $2.4 billion by the private markets, when it most recently raised a Series F round in October 2020 that was worth $130 million.
Coursera’s S-1 filing offers a glimpse into the finances of how an edtech company, accelerated by the pandemic, performed over the past year. It paints a picture of growth, albeit one that came at steep expense.
Revenue
In 2020, Coursera saw $293.5 million in revenue. That’s a roughly 59% increase from the year prior when the company recorded $184.4 million in top line. During that same period, Coursera posted a net loss of nearly $67 million, up 46% from the previous year’s $46.7 million net deficit.
Notably the company had roughly the same noncash, share-based compensation expenses in both years. Even if we allow the company to judge its profitability on an adjusted EBITDA basis, Coursera’s losses still rose from 2019 to 2020, expanding from $26.9 million to $39.8 million.
To understand the difference between net losses and adjusted losses it’s worth unpacking the EBITDA acronym. Standing for “earnings before interest, taxes, depreciation and amortization,” EBITDA strips out some nonoperating costs to give investors a possible better picture of the continuing health of a business, without getting caught up in accounting nuance. Adjusted EBITDA takes the concept one step further, also removing the noncash cost of share-based compensation, and in an even more cheeky move, in this case also deducts “payroll tax expense related to stock-based activities” as well.
For our purposes, even when we grade Coursera’s profitability on a very polite curve it still winds up generating stiff losses. Indeed, the company’s adjusted EBITDA as a percentage of revenue — a way of determining profitability in contrast to revenue — barely improved from a 2019 result of -15% to -14% in 2020.
The company, however, is clearly not aiming to be valued on its profitability, or lack thereof. Instead, Coursera will position itself as a quickly growing company that has a path to future profits. Investors will be left to vet if its growth story is enough to absolve it of its continuing deficits, and whether its planned ramp to the black is credible.
One metric that the company may lean on in making that pitch is an improvement to its operating cash flow, a metric that answers how much cash a company generates or consumes as part of its regular operations. By that metric, Coursera has shown recent refinements, burning $21.3 million in cash during 2019 to fund its operations, a figure that fell to $15 million in 2020.
How has Coursera not managed to reach profitability despite its rising revenue scale? Costs, for one. Let’s dig into them now.
Sales and marketing
In response to the COVID-19 pandemic Coursera is spending more on operations to meet rising demand. Between the year ending December 31, 2019 and the same time period last year, the company spent 54% more on operating costs, from $143.2 million to $221.2 million.
Coursera explains its growing costs as a short-term dilemma. The company says that freemium offerings and a more expensive sales and marketing effort led to higher costs. In other words, the company was more focused on getting new users onto its platform than turning those into paying users, which meant it had to grow its top of funnel through advertisements and free access to content.
In 2019, Coursera spent $57 million on sales and marketing. In 2020, Coursera nearly doubled that line item expense, spending $107.2 million on sales and marketing.
The company is growing, but at a steep near-term cost. This helps explain why, despite generating nearly $110 million more in revenue during 2020 compared to 2019, it managed to lose more money in the process.
The freemium point is a useful place to continue our analysis, as the company’s user growth could encourage some investors that the company’s learning platform has long-term profit potential. So let’s talk about user growth next.
Users
Looking into Coursera’s rising usage, we get a real idea of how the pandemic impacted the number of learners on its platform. In 2019, Coursera had 46 million. In 2020, that number grew to 77 million.
Coursera says that it grew its total learner user base by 65%, adding approximately 30.2 million learners during the year ended December 31, 2020. How have those new users performed? The company’s S-1 provides some context:
In 2020, over 50% of our cash receipts from Consumer offerings came from individual learners who were registered on our platform as of December 31, 2019 and approximately 50% of our new Degrees students were previously registered Coursera learners.
Adding to the user monetization data mix, in 2020, 50% of its Degrees students were already registered Coursera learners, and 30% of Enterprise leads were sourced from consumer platforms.
One note here is that Coursera’s enterprise product, targeted to businesses that want to upskill their employees, grew from 240 users to 387 customers between 2019 and 2020. This revenue is more predictable than what it derives from individual consumers; related edtech player Udemy has seen success with the enterprise play. Udemy is a Coursera competitor that is also looking to go public in the near future.
Consumer incomes make up the majority of Coursera’s business, growing 59% year over year. But its Enterprise top line, which grew 47% year over year, appears strong. If Coursera can keep up similar Enterprise growth in the future, investors could be happy to have some SaaS-friendly metrics to lean on.
At first glance, it’s clear that Coursera grew total usage during the pandemic and does have historical data to show that it can turn its free users into paid ones with the hope of strong lifetime user value through its various offerings.
In the following days and weeks, we’ll get into how Coursera’s looming debut impacts early-stage edtech startups, what it says about freemium-product companies, and, upon pricing, we’ll get a clearer picture of whether public-market investors think edtech will prove lucrative even after the pandemic abates.
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