Coursera (COUR), an education technology stock, has been on a rollercoaster ride since going public in March 2021. After losing a staggering 82% of its value from its initial price of $39, the stock has shown some signs of recovery in recent months, climbing 22% in the last three months. This resurgence has caught the attention of analysts, with Bank of America initiating coverage with a “buy” rating and a price target suggesting a 39% upside. RBC, even more optimistic, believes Coursera could generate more than double-bagger returns from its current price of less than $8.
But what exactly is driving this renewed interest in Coursera? The answer lies in the company’s focus on educating consumers and employees in high-demand fields, particularly artificial intelligence (AI). Coursera generates revenue primarily through two main segments: consumer and enterprise education solutions. On the consumer side, they offer a wide array of professional certificates and courses, many of which are developed in partnership with leading companies like Google and IBM. These courses, often focused on STEM fields, provide individuals with the skills needed for entry-level positions in the tech industry.
For enterprises, Coursera provides customized solutions to address specific needs, such as employee training in AI and data science. The company boasts over 1,500 enterprise customers, showcasing the growing demand for its services in the corporate world. Additionally, Coursera has ventured into the degree segment, partnering with universities to offer fully online bachelor’s and master’s programs. This segment enjoys a unique advantage, as Coursera doesn’t incur any content development expenses, resulting in a 100% gross margin.
While Coursera has demonstrated strong profitability in its various segments, reaching consistent profitability at the operating level has been a challenge. Marketing and sales expenses, which accounted for 34% of revenue in the last quarter, have weighed down the company’s bottom line. However, Coursera has made significant strides in improving its profitability by reducing research and development (R&D) and sales costs.
However, a significant concern is the declining revenue growth. Last quarter, revenue growth slowed to 11%, down from 21% in 2023. Analysts at Bank of America believe that Coursera can reignite growth by capitalizing on the increasing demand for AI training among companies. The company has launched a series of new AI-focused courses in collaboration with IBM and Microsoft, catering to the growing need for workforce training in generative AI. This argument holds weight considering the massive investments companies have made in AI in recent quarters, driving the need for employees with the necessary skills to maximize efficiency gains.
Coursera’s expertise in AI has also been recognized, with OpenAI, the developer of ChatGPT, recently hiring Coursera’s former chief revenue officer to lead its efforts in reaching academic institutions.
While Coursera’s efforts to tap into the AI market are promising, investors will be closely watching for signs of revenue generation. Despite the surge in enrollments for its Gen AI products, most of this demand has been driven by consumers. The real potential for substantial revenue growth lies in the enterprise segment. With enterprise revenue growth currently sluggish at 8%, investors will be keen to see a significant boost from Coursera’s AI offerings. The opportunity for Coursera in the AI education market is undeniable, but concrete evidence of revenue generation is needed before investors can truly embrace its optimistic valuation.
