COUR - Coursera: Investing For The Long Term

Summary

• I anticipate a shortage of workers and an increase in the demand for education through digital platforms.
• Digital tools are the way of the future when it comes to education.
• Superior content and a freemium model give COUR a leg up on the competition.

Recommendation

Coursera ( COUR ) has a strong position in the growing market for online education. The future labor shortages and demand for learning via digital mediums, combined with the current higher education system's difficulties in adapting to these trends, create significant opportunities for Coursera to provide accessible, affordable, and useful online education to a wide range of students. The company's data-powered platform, which uses machine learning and data-driven marketing to match students with relevant courses and materials, allows it to scale effectively and differentiate itself from competitors. In addition, Coursera's partnerships with top universities and businesses give it credibility and access to a large pool of high-quality course content.

Business

Coursera is a business that provides online courses. The company has alliances with educational institutions and other businesses to provide online courses.

Future labor shortages and demand for learning via digital mediums

In my opinion, the need for expertise and continuous education is growing as a result of the combined effects of technological development and internationalization. The world's economic landscape is rapidly evolving. A Monster study predicts that by 2030, the world will be hit with a severe shortage of workers and a significant gap in the availability of appropriate skills. In my opinion, the shortage is due to the absence of sufficiently trained individuals to manage the "automation" part of the labor equation. I believe this will lead to a rise in interest in education and training.

The global spread of COVID-19 has also increased demand for online continuing education. The World Economic Forum predicts that 85 million jobs will be lost to automation and the pandemic by 2025. The same report also found that in light of the pandemic, 84% of businesses planned to speed up their efforts to digitize internal procedures.

The current higher education system has inherent difficulties adapting to these trends, despite their obviousness. The skills needed to succeed in today's workforce are always evolving, and I fear that the traditional classroom model will be unable to keep up. While classroom instruction is beneficial for some students, it may not be adequate for those in less-accessible locations or for non-traditional students who could benefit most from opportunities to advance their education and skills.

The future of learning is via digital means

The integration of technology in education can reduce costs, make education more affordable, provide access to education in poorer areas, and increase the TAM for players in the value chain. While most education is still delivered in traditional, in-person methods, the market is beginning to utilize the benefits of technology.

In my opinion, online education will play a crucial role in supplying the emerging skills in high demand around the world. In addition, the rising popularity of working from home will boost the importance of distance education. Online education has the potential to make it possible for anyone, at any time, to acquire the knowledge and training necessary to compete for high-demand digital jobs. Remote work, on the other hand, can fill a need for employment in areas where local opportunities are scarce.

Coursera is an answer to these problems. It's a hub for bringing first-rate education to working adults all over the world, connecting a vast network of students, teachers, and educational institutions. It's a flexible, scalable, and adaptable system that can be used by both individual students and educational institutions. In an increasingly digital world, Coursera collaborates with more than 275 top universities and businesses to offer an online education that is accessible, affordable, and useful for the workplace.

Data-powered platform

Coursera's AI/ML systems are fed by a large number of student data, which allows the company to learn about the preferences of instructors and students. This information is then used to connect students with relevant guidance and resources as the company expands its course offerings.

In addition, COUR is able to direct students to courses and credentials that are relevant to their professional goals, reducing the cost associated with bringing new paying users and Degrees enrollees to the platform. More importantly, these benefits are not just for the normal consumers; the information also drives marketing effectiveness at enterprises. First, COUR's algorithms determine which students are most likely to be interested in Enterprise offerings and then contact them directly with relevant information. Secondly, consumer platform insights-based thought leadership increases visibility and leads. Finally, COUR lead scoring is enhanced by the accumulated learning behaviors of consumers employed by prospective Enterprise customers. Enterprise customers would be able to see how their company stacks up against the competition with the help of this score.

As a result, COUR is in a stronger position than its rivals in terms of both product quality and marketing reach. More importantly, as COUR expands, they gain more insights from more data collected.

Advantage in the market is created by the freemium model and high-quality content

When compared to competing platforms, Coursera offers a more extensive and varied selection of branded content. In my opinion, COUR stands apart from comp in a few key ways:

1. In contrast to Coursera, which offers more than 5,400 courses, edX was founded as a non-profit by MIT and Harvard and offers 3,500+ courses.
2. The largest number of courses can be found on Udemy (over 200,000), but unlike COUR, it does not partner with academic institutions.
3. A majority of other sites offering corporate training focus solely on technical information relevant to specific jobs.

On the other hand, Coursera's freemium model provides an edge for its Enterprise and Degrees offerings. Because of the free nature of the material offered on Coursera, it has attracted a large number of students, who in turn have attracted more teachers and educational institutions, creating a virtuous cycle. In order to increase enrollment in its Enterprise and Degrees offerings, Coursera promotes itself primarily to potential students through its Consumer segment at the top of the sales funnel. Because of this, Coursera is able to offer lower fees to its university partners and compete more effectively with Degrees in terms of student acquisition costs. And I think Coursera's model of having its partners do the bulk of the content creation makes it more scalable than its traditional competitors, who often work with universities to develop their own degree programs.

3Q22 earnings reiterates reinvestment theme

Earnings for the third quarter showed success in consumer and enterprise, while the degree business continued to struggle due to enrollment trends, especially in the United States, where COUR focuses. COUR's quarterly margin performance was also above expectations, and the company has reaffirmed its plan to reinvest in areas where it sees long-term growth potential. In spite of this, COUR is expected to achieve the margin goal established in February for the entire year. In light of the relatively flat guidance for Q4, I find comfort in COUR's strong Q3 top-line results in this earnings report.

Given the current market climate, in which investors tend to put more weight on a company's long-term story than its short-term performance, I foresee that Q4 will be a pivotal quarter for COUR as investors focus on the size of the company's investments. In the long run, I think Coursera is in a great position to profit from the rising demand for education around the world. COUR would also be able to shift its massive freemium user base into paying customers for its Enterprise and Degrees products, which offer higher profit margins and clearer indications of revenue.

Valuation & model

In FY24, I believe COUR is worth about 23% more than it is currently trading for. I expect that the company's revenue will continue to grow at a healthy rate, albeit at a slower rate than in the past due to a larger revenue base. This expansion is supported by the aforementioned industry trends as well as COUR's ability to capture market share through customer conversion strategies.

COUR is currently trading at a relatively low multiple of forward revenue, close to its all-time low. I believe the current low valuation is due to investors heavily discounting such profitless high growth companies in response to rising interest rates. However, if growth picks up or profits rise faster than expected, we may see a shift in multiples. I believe the current valuation multiple will remain in place until then.

Risks

Increased fees

Although the content partner strategy is advantageous and requires few resources, it also puts COUR at the mercy of its partners, who may demand higher profits from them. If content costs go up for either its Consumer or Enterprise divisions, the company's profit margins will fall.

Timeline to profitability gets delayed

If Coursera speeds up its investments faster than its revenue, it will disappoint investors by taking a longer time than expected to reach profitability. As a result, confidence in management could plummet among investors.

Summary

The buy case for COUR is centered around the company's position as a leading player in the growing market for online education. The company's partnerships with educational institutions and businesses, combined with its data-powered platform, make it well-equipped to address the increasing demand for continuous education and training in a rapidly changing economy. COUR's focus on flexibility, scalability, and adaptability also makes it an appealing choice for both individual students and educational institutions looking to take advantage of the benefits of online learning.

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