You Don't Have To Be An Optimist To Like Coursera

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COUR stock's significant drop after revising FY24 revenue guidance downward is seen as an overreaction.Valued at around $1 billion, COUR is in value territory with $719 million in cash, no debt, and ...

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Sundry PhotographyCoursera's Recent Earnings Report and Stock Performance Following its 3Q24 earnings report on October 24, Coursera’s stock (NYSE:COUR) dropped as much as 20% in the after-market due to a downward revision in revenue guidance. The company lowered its FY24 revenue estimate from $695 - $705 million to $690 - $694 million, missing the low end of its previous estimates from the first and second quarters, with a -1.14% adjustment at the midpoints. Conversely, Coursera raised its FY24 Adjusted EBITDA guidance from $24 - $28 million to $36.5 - $38.5 million, a 42.3% improvement at the midpoints.   Coursera guidance from the first, second and the most recent third quarter 2024 (Coursera IR) Investment Thesis Following Coursera's downward revision of its FY24 revenue guidance, its stock experienced a severe drop, losing as much as 20% in after-hours trading. Despite this, I believe the market reaction is overblown. The stock is now oversold, particularly when considering Coursera’s strong overall performance in Q3 2024, where the company beat expectations on both the top and bottom lines and revised its FY24 Adjusted EBITDA guidance upwards. At a market valuation of around $1 billion, Coursera is trading at what appears to be a very attractive price. With a cash position of $719 million, no debt, and positive Free Cash Flow, the company’s underlying financials are strong. This presents a compelling valuation case for long-term value investors. Coursera’s unique position in the online education sector, its ability to monetize a growing user base of 155 million learners, and its development in key segments like Enterprise and Degrees put it in a strong strategic position for continued growth. As more organizations and individuals turn to digital education platforms for upskilling and credentialing, Coursera is well-positioned to benefit from these structural trends. Company Background IPO And Subsequent Decline Coursera went public in March 2021 at a valuation of $4.3 billion, raising approximately $500 million with an initial stock price of $33. At the time, Coursera’s revenue was growing rapidly, up 59% year-over-year to $294 million in FY20.   Coursera NYSE IPO, March 31st 2021 (NYSE) In the latest 3Q24 earnings report, Coursera guided for a $692 million revenue target for FY24. While the company has more than doubled its revenue over four years, its Price-to-Sales multiple has declined significantly from 8.0x to less than 1.8x.   Coursera Vs Udemy stock Price-to-Sales since IPO (YCharts)Main Sources Of Revenue Coursera generates its revenue from three primary sources: Consumer, Enterprise and Degrees.   Coursera IR Key Highlights from 3Q24 Financial and Operational Highlights  Revenue: Up 6% year-over-year to $176.1 million, surpassing expectations by $2.11 million. EPS: $0.10, beating estimates by $0.08. Adjusted EBITDA: Raised by 170 basis points for the year, reflecting improved efficiency. Free Cash Flow: Strong at $52 million year-to-date. Cash Position: $719 million in cash and equivalents, with no debt.    COUR 3Q24 Top And Bottom Line Beats (Seeking Alpha) Enterprise and Degree Segment grew by 10% to $60.4 million, with a rise in paid customers. The Degrees segment saw 15% year-over-year growth, driven by expansion in markets like India and partnerships such as the University of Texas System. Coursera announced a 10% workforce reduction, aiming to achieve $30 million in annual savings. This aligns with its strategy to maintain profitability while investing in growth areas, particularly in AI and digital credentials. Coursera’s Financial Strength and Strategic Position You Don’t Have To Be An Optimist To Like Coursera With a market cap near $1 billion, a positive year-to-date Free Cash Flow of $52 million, $719 million in cash, and no debt, Coursera appears financially robust. Since FY23, the company has generated positive Free Cash Flow, suggesting minimal need for future debt or equity raises, which is beneficial in the current high-interest-rate environment. The following charts highlight the cash flow improvements for Coursera and its competitor Udemy (UDMY), demonstrating Coursera’s advantage with a higher cash reserve.   Coursera Vs Udemy FCF, Cash from Operations and Cash and Cash Equivalents (YCharts) Potential for Share Repurchases And Strategic Investments Given Coursera’s low valuation, share repurchases may be an option for management. In the recent earnings call, executives noted they plan to make strategic financial moves with excess cash, with potential share buybacks on the table, though not imminent. Cash flow from financing activities shows Coursera spent $36 million and $58 million in the first nine months of 2024 and 2023, respectively.   Coursera 3Q24 Cash Flow Statement (Coursera IR) The Future of Online Education and Coursera’s Role As one of the largest MOOC (Massive Open Online Course) platforms, Coursera generates revenue from the Consumer, Enterprise, and Degree segments. MOOCs grew from the Open Educational Resources movement, pioneered by MIT’s OpenCourseWare. Industry Growth Projections According to Statista, revenue in the Online Learning Platforms market is expected to reach $58.45 billion in 2024 and grow at a 5.26% CAGR, reaching $75.52 billion by 2029. User penetration is projected to rise from 13.5% in 2024 to 16.7% by 2029, driven mainly by the Chinese market. Competitive Advantage in AI and Workforce Development The online education sector is set to benefit from AI adoption by businesses and governments. Coursera provides a platform for top companies like Google (GOOGL) (GOOG), Meta (META) and IBM (IBM) to offer current, industry-relevant courses. This supports workforce upskilling globally, which is reflected in Coursera’s Enterprise segment. Through its Degrees segment, Coursera enables learners to earn credentials from prestigious institutions, leveraging its 155 million-user platform. Although the discretionary revenue of online education services is currently facing pressure, as is the case in most consumer discretionary businesses, I believe online education is unlikely to stall in the medium to long term. Online education provides easily accessible and relatively inexpensive access to world-class material from top institutions and experts, on a large scale. Main Risks   Online Learning Market Uncertainty: The adoption of online education and AI-driven learning solutions may not grow as expected, which could limit the demand for Coursera’s services.  Cybersecurity and Data Privacy: Coursera holds sensitive data about learners and partners, making it vulnerable to cyberattacks or data breaches. Such incidents could harm the company’s reputation and lead to legal and financial repercussions.  Regulatory Compliance: Coursera and its partners must navigate complex education, data privacy, and accreditation regulations. Non-compliance could result in legal actions, fines, or operational disruptions.  Competitive Pressure: Coursera faces stiff competition from other online education platforms. Increased competition may force the company to lower prices or invest more heavily in marketing, impacting profitability.  Profitability Concerns: While Coursera has a strong cash position, it has incurred significant losses since its inception and may struggle to achieve or maintain profitability, particularly if new initiatives fail to generate sufficient revenue.  Valuation Analysis Using a 4% risk-free rate, an expected 5% target EBIT margin achieved over five years, and a 10% revenue growth rate, Coursera could reach $1.68 billion in revenue and $178.8 million in Free Cash Flow by 2034. At a terminal cost of capital of 8.58%, Coursera’s estimated value per share is $24.9, implying a potential 283% upside from current levels.   10 Year FCF Valuation of Coursera stock (Author's Figure) Stock Characteristics and Market Correlation Coursera has demonstrated a mild correlation with the S&P 500, Gold, Bitcoin and its competitor Udemy.   COUR stock correlation with the S&P 500, Gold, Bitcoin and Udemy stock (Author's Figure)Looking at the correlation of COUR with S&P 500 industry factors, the stock has shown the highest correlation with the S&P 500’s Materials, Industrials, and Consumer Discretionary sectors, while it’s least correlated with the Utilities sector.   COUR stock correlation with S&P 500 industry factors (Author's Figure)Action Recommendation Using a combination of Quant, Valuation and Future factors, I initiate Coursera with a solid ‘BUY’ rating. Table 1: Factor Grading and Action Recommendation for COUR stock         Factor Description Grade   Quant Seeking Alpha Quant HOLD   Valuation Fundamental, Top-down, Multiple, Financial Health STRONG BUY   Future Market Projections, Market Positioning, Economic Sensitivity, Ownership & Management BUY   Overall   BUY   Click to enlarge Conclusion Coursera's sharp stock decline following its 3Q24 earnings report presents a compelling opportunity for long-term investors. While the downward revision in revenue guidance caused significant market concern, the company's improved EBITDA outlook, solid cash position, and improving Free Cash Flow generation highlight its solid fundamentals. Coursera continues to benefit from structural growth in online education, with key segments such as Enterprise and Degrees poised to capitalize on global upskilling trends. At a valuation of approximately $1 billion, with $719 million in cash, no debt, and positive Free Cash Flow, Coursera offers significant upside potential. The company's ability to scale its platform, combined with the ongoing adoption of AI in education, positions it for sustained growth in the medium to long term. Valuation metrics suggest a potential 283% upside, making Coursera an attractive investment at current levels.  With solid financials, a strategic market position, and robust growth prospects, I recommend a ‘BUY’ rating for Coursera. Investors who can look past short-term volatility and focus on the company's long-term potential should find COUR stock an appealing addition to their portfolios.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2478957360"}