Over the last six months, Udemy shares have sunk to $7.80, producing a disappointing 7.7% loss - worse than the S&P 500’s 1.9% drop. 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? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Udemy Not Exciting?
Even with the cheaper entry price, we don't have much confidence in Udemy. Here are three reasons why UDMY doesn't excite us and a stock we'd rather own.
1. Customer Spending Decreases, Engagement Falling?
Average revenue per buyer (ARPB) is a critical metric to track because it measures how much the average buyer spends. ARPB is also a key indicator of how valuable its buyers are (and can be over time).
Udemy’s ARPB fell over the last two years, averaging 1.6% annual declines. This isn’t great, but the increase in monthly active buyers is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Udemy tries boosting ARPB by taking a more aggressive approach to monetization, it’s unclear whether buyers can continue growing at the current pace. 
2. Projected Revenue Growth Shows Limited Upside
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 stall, a deceleration versus its 13.3% annualized growth for the past three years. This projection doesn't excite us and suggests its products and services will see some demand headwinds.
3. 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 67.6% 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 bar. Following the recent decline, the stock trades at 12.1× forward EV/EBITDA (or $7.80 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We're pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our top digital advertising picks.
Stocks We Like More Than Udemy
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