Online education company Udemy this morning set an initial IPO price range for its upcoming debut.
The San Francisco-based edtech unicorn — backed by Learn Capital, Insight Partners and Norwest, among others — expects to price its IPO between $27 and $29 per share. The company could be valued at more than $4 billion at the upper end of its price range. It’s a modest bump in worth for the company, which was last valued at $3.32 billion during its $50 million November raise.
The pricing comes amid a busy year for edtech IPOs, which has included the public debut of language learning company Duolingo, tutoring marketplace Nerdy, edtech software firm PowerSchool and potentially even Quizlet.
Let’s dig into where Udemy’s IPO price range puts its potential public value in detail, and then look at new preliminary numbers for its third quarter to see what they can tell us about edtech valuations more generally.
Udemy’s possible IPO valuation
Udemy is selling 14,500,000 shares in its IPO, with an additional 2,175,000 shares set aside for its underwriters, if they so desire to purchase them.
The company will have 139,602,466 shares outstanding, inclusive of its underwriters’ option, when it is public. At its current $27 to $29 per-share IPO price range, Udemy would be worth $3.77 billion to $4.05 billion in its public offering.
Turning to fully diluted valuations, which include fully vested stock options that have yet to be exercised, for example, Udemy is worth more. IPO-watching group Renaissance Capital estimates that at the company’s midpoint valuation — $28 per share — the edtech giant is worth $4.3 billion.
Quick math provides us with a fully diluted valuation at the upper end of the company’s price interval of $4.45 billion.
Each valuation is an improvement on the company’s final private valuation, set during a $50 million late-2020 Series F. At that juncture, the company was worth $3.25 billion, per Crunchbase data.
Does that pricing make sense?
In its new S-1/A filing, Udemy detailed its financial performance through the first nine months of 2021, an upgrade from its first filing that only included data through Q2 of this year.
Here’s the latest:
As we can see, Udemy’s consumer revenues are flat on a year-over-year basis, while its business top line expanded rapidly. This matches our notes from the company’s first IPO filing, when we noted the rising importance of its enterprise revenues.
In its prior filing, Udemy said that it had generated $250.6 million in total revenue during the first half of 2021. That means the company had revenues of between $125.7 million and $130.9 million in the third quarter, a period that the company has yet to fully lock down.
Udemy reported Q2 2021 revenues of $126.1 million, meaning that it posted top line in Q3 that was either slightly under or slightly above its Q2 result. Compared to the company’s year-ago Q3 quarter’s revenues of $118.4 million, we can anticipate year-over-year growth of between 6.1% and 10.5%. Neither of those numbers is particularly exciting, frankly.
In revenue multiple terms, using the company’s upper-end estimate of $29 per share for its worth, its fully diluted valuation of $4.45 billion, and its higher revenue estimate for Q3 2021 to generate a run rate of $523.6 million, we can put an 8.7x revenue multiple on the company.
That’s not insane, given its anemic growth rates. Investors who think that the company’s enterprise revenues are set to keep scaling may find it low. Investors who are less enthused about the corporate education market may find it high.
We take no position at this juncture as to whether the company will raise its range or price within or near its presently listed interval.
So what?
Udemy’s slowing revenue growth is not bullish for edtech valuations more broadly; the company’s modest resulting revenue multiple is also somewhat beige.
The test for the company will be if it can convince potential investors that its promising enterprise growth is just the tip of the iceberg. While few would argue that digitization and rapid re-skilling are impacting workforces across the world, some may need to be convinced that enterprise edtech is the solution to the resulting gaps.
Pluralsight may shed light on precedent. The Utah-based startup debuted on the stock market two years ago with a simple business: It uses online courses to retrain techies with in-demand skills. This past year, however, Pluralsight left the stock market in a $3.5 billion acquisition from Vista, marking one of the largest enterprise buys of the year and the loss of one of the few publicly traded edtech companies.
Surprisingly (or not; it depends), edtech investors viewed Pluralsight’s complicated exit as all-around good news for edtech — and proof that there’s a variety of liquidity opportunities out there. They are still pouring millions into private-sector plays to re-skill workers.
In a previous interview, Ashley Bittner of Firework Ventures said that she thinks “training will become job-embedded, rather than only trying to hire to address the challenge.” She sees opportunity in external resources filling in gaps that companies have internally, and that much of the training will have to exist online, fueling investments in Hone, TransfrVR and Praxis Labs. There’s also Guild Education, which recently raised $150 million at a $3.75 billion valuation.
More as we get closer to Udemy’s IPO date or if it posts a second — higher or lower — price range for its public debut.
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