March 8, 2021
Online learning platform Coursera filed its S-1 on March 5. The Mountain View-based company will go public via the New York Stock Exchange, though it has yet to announce the date of its trading debut. Coursera most recently raised $130 million in a July 2020 funding round, garnering a $2.5 billion valuation, according to PitchBook. On March 30, Coursera announced that it priced shares at $33, which gave the company a market value of $4.3 billion and a fully diluted valuation for $5.4 billion, according to Bloomberg.
The IPO announcement comes at a time of crisis for U.S. higher education. The Chronicle of Higher Education estimates that colleges collectively lost $183 billion between March and December 2020 through a combination of revenue loss, COVID-related expenses and public funding cuts. And around two-thirds of colleges experienced a decline in undergraduate enrollment in the fall of 2020, contributing to over 650,000 lost jobs (13% of total positions) between February and December 2020.
"The old model of education, where you go to college for four years and then coast for the next 40, does not work in today's changing world," Coursera co-founder Andrew Ng wrote in the S-1.
Potential Coursera investors must decide whether the old model is, in fact, beyond repair. And if so, is the system best suited to replace it one that is for-profit, online and predicated on partnerships with a handful of the most powerful universities?
Coursera accelerates the winner-take-all trend in higher education. It allows a handful of elite institutions to further monetize their brands by creating a parallel education tier that operates alongside their traditional in-person offerings. These elite institutions would leverage Coursera to sell wide-ranging accreditations at scale with minimal variable cost per virtual student. If they manage to survive at all, small and mid-sized colleges and universities would lose potential students to the profit-driven arms of their larger counterparts.
WHAT DOES COURSERA DO?
Coursera is an online learning platform. Rather than make content itself, Coursera distributes lectures, quizzes and projects produced by its 150-plus university partners and 50-plus industry partners. The company says it wants to "democratize access to high-quality education." A large part of its appeal comes from partnerships with well-regarded institutions such as Princeton and Stanford, which, in the words of Coursera, "opened their virtual and hallowed doors to millions."
This distributive model allows Coursera to offer a wide range of education services. Guided Projects take less than two hours and cost $10. Courses take four to six weeks and range in price from free to $99. MasterTrack certificates take three months to a year and cost $2,000 to $6,000. Coursera also offers full bachelor's and master's degrees, which cost between $9,000 and $45,000.
There were nearly 77 million registered users on Coursera at the end of 2020, up 65% from 2019. Only 3.6 million of these users actually paid for a service, and an even smaller share (11,900 students at the end of 2020) were working toward a full degree. Over 80% of Coursera users are based outside the U.S., in large part from India, Mexico, Brazil and China.
Coursera generated $294 million in revenue in 2020, up 59% from the $184 million generated in 2019. Coursera divides its revenue into three segments:
- Consumer revenue: Around two-thirds of total revenue ($193 million) in 2020 came from selling education experiences outside the formal degree programs to individual consumers.
- Degrees revenue: Though it was the smallest segment, degrees revenue from tuition grew the fastest rate in 2020, nearly doubling from 2019 to reach just under $30 million.
- Enterprise revenue: This segment generated $71 million in 2020, up 47% from 2019. Enterprises pay for a subscription to a fixed number of licenses that allow employees to access a portion of the overall Coursera catalog. It has three offerings: Coursera for Business, Coursera for Campus and Coursera for Government.
Coursera posted a net loss of $67 million in 2020, compared to a $47 million loss from 2019. Most of the money isn't actually going back to universities: The cost of revenue line item, which includes fees paid to educator partners, only accounted for 47% of total revenue in 2020. Most of the costs came from operating expenses in the form of sales and marketing and R&D.
WHAT COULD GO WRONG?
Three risks stand out from Coursera's risk section: reliance on university partners, intense competition in the online education space and public scrutiny over the for-profit education model.
Coursera touts its partnerships with prestigious institutions as a source of differentiation. However, these partnerships are a source of risk for Coursera, since the universities have significant leverage by nature of their perceived scarcity.
- Considering that Coursera hasn't managed to turn a profit even with its current agreements in place, universities demanding more favorable terms is a significant risk. The company notes that university partners could "change the terms of these agreements, including the pricing terms or contract length."
- One source of potential pushback? Coursera writes that it could "face resistance from university administrators or faculty members." Academics are doing all the actual education labor for Coursera yet it doesn't materially benefit them. In fact, if online learning platforms succeed in attracting would-be students from small and mid-sized universities, it would exacerbate the already bleak academic job market.
The online education space is also quite crowded, and Coursera is pursuing one of many potential models for online learning.
- Coursera lists its competitors in the direct-to-consumer online education space: edX, FutureLearn and Udemy. It also acknowledges that universities could develop in-house online learning platforms.
- For those simply wanting to pick up a skill and not worry about accreditation, there's Khan Academy, Wikipedia, YouTube and countless other tools that provide education material for free.
- In the corporate training space, there's LinkedIn, A Cloud Guru, Pluralsight and Udacity.
- Coursera writes: "If these or other market participants introduce new or improved delivery of online education and technology-enabled services that are more compelling or widely accepted than ours, our ability to grow our revenue and achieve profitability could suffer."
Finally, Coursera acknowledges that being a for-profit educator might draw public scrutiny and harm its business.
- "Some for-profit online school operators have been subject to governmental investigations alleging the misuse of public funds, financial irregularities, and failure to achieve positive outcomes for learners, including the inability to obtain employment in their fields," the company writes.
- This could hinder Coursera's ability to attract students. The company also writes: "Allegations of abuse of federal financial aid funds and other statutory violations against for-profit higher education companies could negatively impact our ability to succeed due to increased regulation and decreased demand."
WHO GETS RICH?
Coursera disclosed the following ownership stakes, as they stood at the end of December 2020:
- Venture capital firm New Enterprise Associates owned 18.3%.
- The growth-stage venture fund G Squared owned 15.9%.
- Kleiner Perkins Caufield & Byers owned 9.2%.
- The Northern Trust Company owned 7.9%.
- Coursera co-founder Andrew Ng owned 7.8%.
- Coursera president and CEO Jeffrey Maggioncalda owned 3.5%.
WHAT PEOPLE ARE SAYING
- "Coursera's main strength right now is cheap customer acquisition across their learning products. Customer brand awareness is high and this is useful for building credibility and authority over providing courses as well as convincing customers that a certificate from Coursera for completing a course has value in the job market." —David Furlong, founder and CTO of Deedmob, on his personal blog.
- "The strongest brand in the world is not Apple or Mercedes-Benz or Coca-Cola. The strongest brands are MIT, Oxford, and Stanford. Academics and administrators at the top universities have decided over the last 30 years that we're no longer public servants; we're luxury goods. … We as academics and administrators have lost the script." —NYU Professor Scott Galloway in a Q&A with New York Magazine from May 2020, speaking about the changing higher education landscape.
Update: This story was updated on March 31, 2021, to reflect an update to Coursera's share price.