The online education, or edtech, industry was valued at $123 billion in 2022. The market is expected grow at a 13.6% compounded annual rate, reaching a value of $348 billion by 2030, according to GrandView research.
These figures are no surprise given the huge move toward remote and hybrid work. In addition, the recent rise in artificial intelligence means an estimated 44% of employee skills are expected to be disrupted over the next five years, according to a WEF report. Therefore, six in 10 workers will require training before 2027.
On the other side of the market, new skills are increasing in demand, such as data science, coding and big data. Coursera is a market leader in edtech, which is fast moving to fill this gap in the education industry. 
In this discussion, I will break down Coursera's business model and its recent earnings report, which was strong. Let’s dive in.
Edtech business bodel
Coursera stands tall as the frontrunner in the realm of online education, with an astounding 57 million monthly visitors to it website.
What sets this educational giant apart is its alliances with prestigious universities like Stanford, the Imperial College of London and the University of Pennsylvania. Moreover, Coursera's array of courses extends even further, featuring collaborations with industry titans like Meta Platforms (META, Financial), Alphabet's (GOOG, Financial) Google and IBM (IBM, Financial). This diverse selection encompasses subjects in high-demand areas such as software engineering and data science.
By virtue of these partnerships, Coursera has acquired a distinctive edge in the market, effectively establishing each collaboration as an exclusive product brand.
An added advantage of Coursera's online courses is the flexibility they offer. Students can learn at their own pace and benefit from significantly lower costs compared to traditional in-person courses. As opposed to random YouTube video consumption, its courses are structured and guided by educators, which add credibility to the learning experience.
Strong financials
Coursera reported strong financial results for the second quarter of 2023. Its revenue of $153.7 million beat analyst forecasts by $7.5 million and rose by 23% year over year. This was driven by particular strength in the consumer segment, as the business signed up 5.7 million new learners, bringing its total to 129 million. The growth was noted across all regions, which is a positive for diversification.
Its Degrees revenue increased by 10% year over year to $12.5 million. This was driven by a 9% increase in degree students to 19,069. The beauty of the Degrees segment is there is no cost for content, so this segment has a gross margin equating to 100% of revenue.
Enterprise revenue was a solid $54.2 million, up 24% year over year. This was driven by solid growth in both government and commercial business, with its enterprise customers rising to 1,300. For example, the company scored a partnership with the Republic of Kazakhstan in order to level up its higher education system.
Despite only launching with the country in March, Coursera has signed up 20,000 students, which have completed 25,000 courses.
Product growth and AI
Coursera has integrated artificial intelligence into various parts of its product lifecycle. For example, the company launched “Coursera Coach,” which is a virtual learning partner that is used to offer students personalized evaluation and feedback on their submissions.
This product was launched in beta to millions of Coursera Plus subscribers in the second quarter and is expected to be improved via feedback.
The business also announced a ChatGPT plugin, which will enable users to directly connect with the website and discover content, without needing to go through Google search. I believe this is a strong strategic move as it may result in a new wave of customers, which its competitors do not have.
Coursera is also using AI for languages, having translated 2,000 courses into seven different languages during the second quarter. I believe this is immensely powerful as it increases content quantity while reducing the cost to produce new courses.
The company's partner content has also been enhanced through AI partnerships with DeepLearning.AI and Google Cloud.
From a skills perspective, Cousera is pushing AI-ready skills such as machine learning and Python coding.
With the development of AI, some are expecting more cyber threats to arise, so the skills to combat these will be vital. In this case, Coursera has launched new Cybersecurity Analyst and Power BI Analyst certificates from Microsoft (MSFT, Financial).
Profitability and balance sheet
Moving on to profitability, Coursera reported an earnings loss of 21 cents per share, which beat analyst forecasts by 8 cents. It also recorded an 11% increase in the cost of revenue. However, its operating expenses declined by 22% to $88.8 million, which was a positive.
This was driven by a 9% reduction in sales and marketing expenses, which now contribute to 29% of total revenue. Research and development expenses also declined by 8% year over year and sit at 18% of revenue.
Overall, the business is showing signs of operating leverage with general and administrative expenses declining by 5% year over year.
Moving on to free cash flow, the company reported $11.5 million, which increased from $3.2 million in the prior year.
On its balance sheet, the company reported $717 million in cash, cash equivalents and short-term investments in addition to virtually no debt, which is positive.
The company bought back a staggering $4.5 million shares during the quarter, which traded for an average price of $12.06 per share.
Valuation
Coursera trades with a price-sales ratio of 4.35, which is below its historic average.
The stock also trades with a price-book ratio of 2.94, which is also lower than its historic levels.
Final thoughts
Coursera is a tremendous company that is poised to benefit from the AI-driven disruption across multiple parts of its value chain. This includes arming employees who need upskilling with the right tools and integrating AI into its own product. The company reported solid growth in the second quarter, surpassing expectations. Therefore, this business looks to be a great play on the future of online education.
