The Coursera S-1

Coursera went public on the NYSE on March 31, and since then I’ve been meaning to dig into their S-1, which is the technical term for the financial report they have to share with investors before a public offering. Coursera is arguably the closest competitor to Udacity, where I worked for 4.5 years, so I’m naturally curious.

Here is some headline information.

Cash

The first thing that jumps out at me is how strong Coursera’s cash position was, at the time of the IPO. This was not a company that needed to go public, in spite of annual loses of $67 million. They had $285 million in the bank, so they were in good shape already.

Perhaps precisely because of that, Coursera’s largest shareholders were NEA and G Squared. The former is a high-profile venture capital firm, and the latter is a somewhat lower-profile growth-stage investor. Andrew Ng held 8% of the shares at IPO, Maggioncalda held 4%, and Daphne Koller was somewhere below the 5% reporting threshold.

Growth

Coursera’s growth from 2019 to 2020 is impressive. 60% year-over-year! Presumably this involved heavy discounting, but their profit margin stayed pretty stable, at about -25%.

Expenses

Their income statement shows gross margin of 53%, which seems low for a technology company. Probably this is due to the all of the payments they make to third-party instructors who build courses sold through the Coursera platform.

Sales and marketing is also a huge expense, amounting to 36% of revenue. I’m curious how much of that is sales to enterprise customers, versus marketing to consumers. Adding 35% sales and marketing to 47% cost of goods sold leaves only about 18% of revenue left to cover all of Coursera’s other expenses.

The risk here is that Coursera’s current losses may not be investments in technology that can be amortized at zero marginal cost in the future. Rather, the losses may be due to ongoing creator and sales costs that will stay with Coursera forever, which would make the business much less attractive, financially.

Products

• Guided projects for $9.99
• Courses for $0 to $99
• Specializations and certificates for $39-$99/month
• University courses for $2000 to $6000
• Bachelor’s or master’s degrees for $9000 to $45,000

The question here almost asks itself. Do they have such a wide array of products because they all work, or because they haven’t yet figured out which ones work?

Channels

The breakdown between enterprise customers and consumer learners is also important.

Enterprise customers require expensive high-touch sales, but are sticky and price-insensitive. Consumer learners have the same drawback as dating app customers — if you serve them well, they get what they need quickly, leave, and don’t return for a long time.

Given that dynamic, the growth in consumer channel is impressive. I guess this might be due to discounting. Consumers tend to be sensitive to price, so it’s possible to generate a lot more demand with lower prices.

The degree channel looks small, but if it can double in size again this year, it will be a real factor in their business.

Conclusion

Coursera has done a great job managing their business, especially when it comes to growth. The big question is whether they can get their costs under control.

I suspect they have a lot of leverage here, because the EdTech market is still pretty immature. The number of competing distributors that an instructor could turn to is small.

Originally published at http://davidsilver.blog on May 6, 2021.