Since September 2024, Udemy has been in a holding pattern, posting a small return of 2.9% while floating around $8.17.
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We're swiping left on Udemy for now. Here are three reasons why we avoid UDMY and a stock we'd rather own.
Why Is Udemy Not Exciting?
With courses ranging from investing to cooking to computer programming, Udemy (NASDAQ:UDMY) is an online learning platform that connects learners with expert instructors who specialize in a wide range of topics.
1. Customer Spending Decreases, Engagement Falling?
Average revenue per buyer (ARPB) is a critical metric to track because it measures how much the average buyer spends. ARPB is also a key indicator of how valuable its buyers are (and can be over time).
Udemy’s ARPB fell over the last two years, averaging 1.8% annual declines. This isn’t great, but the increase in monthly active buyers is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Udemy tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether buyers can continue growing at the current pace.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Udemy’s revenue to rise by 1%, a deceleration versus its 15.1% annualized growth for the past three years. This projection is underwhelming and implies its products and services will face some demand challenges.
3. Poor Marketing Efficiency Drains Profits
Unlike enterprise software that’s typically sold by dedicated sales teams, consumer internet businesses like Udemy grow from a combination of product virality, paid advertisement, and incentives.
It’s very expensive for Udemy to acquire new users as the company has spent 69.8% of its gross profit on sales and marketing expenses over the last year. This inefficiency indicates a highly competitive environment with little differentiation between Udemy and its peers.
Final Judgment
Udemy’s business quality ultimately falls short of our standards. That said, the stock currently trades at 16.9× forward EV-to-EBITDA (or $8.17 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. We’d suggest looking at the most dominant software business in the world .
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