Online learning platform Udemy (UDMY) went public in October 2021 at $29 per share. Since this initial public offering (IPO), it’s been a terrible stock to own — down 47% from its IPO price whereas the S&P 500 is up roughly 1% during this time. Not only is Udemy an…
IPO stock that’s down, but it’s also operating under the radar. For evidence, consider that only 740,000 shares have traded hands per day on average over the past three months, according to Yahoo Finance. This is a relatively low trading volume for a company as big as Udemy and suggests most investors simply look at it with indifference.
I’m not an indifferent onlooker of this company. Udemy is a stock I’m watching with extreme interest. And if the company continues to grow one specific part of its business in 2022, I’ll buy shares in a heartbeat. Allow me to explain why.
What is Udemy?
Udemy is an online marketplace for education. There are other public education companies like 2U and Coursera. But I believe Udemy has a competitive advantage when it comes to educational content creation. Whereas the aforementioned companies gravitate toward university partnerships and accredited professors, anyone can create a course on Udemy.
At first glance, this might look like the bear case for Udemy. After all, the company is flinging the door wide open to anyone, which could allow poor-quality content and instructors inside. This is almost certainly true. Consider that there are currently over 175,000 courses taught by over 60,000 instructors on Udemy’s platform. It’s highly likely at least some of these are subpar offerings.
However, Udemy is a marketplace business. Marketplaces benefit from flywheels. In this case, more courses can attract more students and vice versa.
The primary challenge is to get the flywheel spinning in the first place. However, with over 175,000 courses, it’s highly likely students can at least find something of value on Udemy’s platform. And more students will motivate more high-quality professors to create additional educational content.
Therefore, by lowering the barrier of entry for content creation, Udemy jump-started its flywheel. And it’s working. Consider that in 2017, there were just 10 million learners using Udemy. Fast forward to the third quarter of 2021, and there’s over 46 million.
Udemy’s consumer business generated $79.2 million in revenue in Q3, down 13% year over year. But for context, revenue was up 77% last year, boosted by consumers looking to acquire new skills during the pandemic lockdowns. So the revenue took a slight dip this year, but overall growth is still strong on a two-year basis.
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