IPO Coursera: 5 things to know about the online training business


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When Coursera, the online education company, launched its first courses around nine years ago, it was part of a wave of companies betting on what could be the future of higher education, or the future. less a future: free online lecture-style courses taught by professors from reputable universities.

At the time, the buzz around these massive open online courses, as they are called, was such a racket that the New York Times said 2012 would be “”The year of the MOOC. ”

The promise of MOOCs and online courses more broadly to democratize access to higher education has shown cracks over the years, but that hasn’t stopped Coursera from attracting users and finding ways to convert. consumers of free courses into paid users. The COVID-19 pandemic, which sent workers home and introduced more students than ever to online education, has only accelerated this growth.

“We’ve all been thinking about how long Coursera will last, going back to 2012 or 2011, the really interesting thing was what they could do with this massive number of learners that they were accumulating,” said Howard Lurie, analyst. principal at Eduventures Research, an educational consultancy and research firm. “And now we see. ”

The Mountain View, Calif.-Based company is going public at a time when more students than ever have been exposed to the potential and pitfalls of online education, a trend Coursera has capitalized on, according to its filing with the Securities and Exchange Commission. The company, led by chief executive Jeffrey N. Maggioncalda, is looking to sell more than 15 million shares at a price of $ 33 each, at the top of their target range, raising around $ 520 million and valuing the company at 4. $ 3 billion. More than $ 30 million of the funds raised through the IPO will go to selling shareholders, with the remainder going to the company to be used for general purposes.

The underwriters, led by Morgan Stanley MS,
-2.14%
and Goldman Sachs GS,
-1.37%,
have access to around 2.4 million additional shares in the event of an over-allotment. The shares are expected to trade on the New York Stock Exchange starting Wednesday under the symbol COUR COUR,
-2.23%.

Here are five things to know about Coursera.

Coursera makes money by attracting paying users at a relatively low price

Coursera is known for its free courses: of the company’s roughly 77 million users, only 3.6 million have paid for a course or other offering. But Coursera’s business model allows the company to spend less than its competitors to attract paying users, analysts say.

The company has three main lines of business. The first is aimed directly at consumers, where interested students can sign up for free courses or pay for offers, including two-hour guided project courses for $ 9.99 and professional certificates that take three to three. nine months to earn and cost $ 39 to $ 99 per month.

The second is a business, where businesses, governments, and other institutions pay Coursera to provide access to courses their employees can use for upskilling or upgrading. At the end of last year, more than 2,000 companies were paying Coursera for these services, including 25% of Fortune 500 companies, the company said.

The third is Coursera’s degree program. Through this segment, the company works with universities to offer bachelor’s and master’s degrees. In these provisions, the colleges admit the students, their faculties teach the courses and the schools award the diploma. But Coursera takes on a lot of the marketing and technology responsibilities in return for a percentage of the tuition fee income.

“When you have this unified platform, it allows you to create a very large, inexpensive funnel to bring students into the range of programs that you offer,” said Brett Knoblauch, vice president of research at stocks at Berenberg Capital Markets, which covers education technology. .

In 2020, around 50% of Coursera graduate students were previously enrolled on the site and more than 30% of the company’s leads were from the mainstream platform, according to the company.

In the two years leading up to the end of 2020, the company acquired 12,000 new graduate students at a cost of $ 2,000 per student, according to its S-1. That’s probably less than other online program managers – companies that work with universities to develop degree programs, usually in exchange for a share of tuition fee income – are spending to attract new students, according to Lurie. .

The business also has the potential to increasingly benefit from network effects – or the idea that each additional user makes the platform more attractive to other users – as it grows. Each new customer creates an opportunity to expand the company’s content library, Knoblauch said, increasing the platform’s appeal to other customers.

“As you increase the number of degrees on your platform, the number of courses or specializations, it further increases the value of why a business would want to do it,” he said.

Coursera added millions of new users during the pandemic

About 30.6 million new users signed up for Coursera in 2020, up from 9.2 million new users in 2019.

“It’s a hockey stick,” Lurie said.

Of course, much of that growth was linked to the COVID-19 pandemic, which caused so many workers at home – and some without jobs – to suddenly seek new entertainment and developmental opportunities they could do without leaving. the House. Coursera said it recorded enrollments 15 times above average during peak hours at the end of March 2020.

While the pandemic has certainly contributed to the conditions for such high user growth, Lurie said Coursera is poised to capitalize on interest in online courses in 2020 in a way that would not have been more. early in its existence.

“If it was 2013 or 2014 and the pandemic hit, I don’t think we would see them file an IPO,” he said. Over the past few years, Coursera has been able to differentiate itself from other online training companies by gathering millions of users – and data on what interests them – and leveraging that information to make recommendations to users on the paid courses they might want. track and partner with universities and employers to offer relevant courses or study programs.

“They don’t hesitate to say that you signed up for this course, that you have completed it, based on that we are going to recommend other things,” Lurie said. “Their numbers wouldn’t have increased if this formula didn’t work.”

The business is still not profitable

Coursera lost $ 66.8 million last year, up from $ 46.7 million in 2019. The company expects its operating expenses to continue to rise for the foreseeable future, as it expands course offerings, users and marketing efforts, and engages in other growth activities. .

“They may not be profitable for a while,” Lurie said.

The company’s revenue increased from $ 184.4 million in 2019 to $ 293.5 million in 2020.

Online degrees have become more attractive to universities, but there are still risks

Both public and private non-profit universities have historically been reluctant to offer degrees online, as they are often associated with for-profit colleges, which are more likely to provide students with an expensive education or a degree that is not worth a great deal. -something in the labor market.

“The reasons why universities have historically lagged behind or hesitated to invest in [online education] is because of the potential brand implications, ”Knoblauch said. “Universities care about their brand the most, it’s what they use to attract enrollments.”

Coursera said the scrutiny of for-profit colleges and their online education programs could pose a risk to their business. “Even if we do not market our solutions to these institutions, this negative media attention may still add to skepticism about online higher education in general, including our solutions,” the firm said in its S-1.

But public and nonprofit colleges and universities face budgetary challenges that will likely push them to generate income through online degrees, Knoblauch said. Last year, colleges ran out of funds for housing, restaurants, parking, athletics and other areas.

While working with a company like Coursera to offer degrees online can potentially bring in more dollars for tuition, it’s not without controversy. Critics fear that contractual agreements between PMSs and colleges, where companies receive a percentage of tuition fee income, inflate costs for students.

Coursera will be a public utility

Coursera will be incorporated as a Delaware Public Utility, a legal entity that allows a for-profit company to balance serving the interests of shareholders with some kind of public interest.

The company is also B-Corp certified, which means that the nonprofit B-Lab has evaluated Coursera’s business practices and determined that it meets certain standards for creating value for its workers, the community and environment.

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