Shareholders of Udemy would probably like to forget the past six months even happened. The stock dropped 35.7% and now trades at $4.76. This may have investors wondering how to approach the situation.
Is there a buying opportunity in Udemy, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Udemy Not Exciting?
Even with the cheaper entry price, we're swiping left on Udemy for now. Here are three reasons why UDMY doesn't excite us and a stock we'd rather own.
1. 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 2%, a deceleration versus This projection doesn't excite us and implies its products and services will see some demand headwinds.
2. 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 63% 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 isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 3.6× forward EV/EBITDA (or $4.76 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at one of Charlie Munger’s all-time favorite businesses.
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