5 takeaways from the Coursera IPO filing

Coursera's S-1 dropped last Friday, giving us a glimpse of the financial impact that COVID-19 had on a large edtech company.

We worked through the numbers on the day the filing happened, but here are the core data points: Coursera's 2020 revenue came to $293.5 million, up 59% from the year prior. During the same period, Coursera had a net loss of nearly $67 million, up 46% from the previous year's $46.7 million net deficit.

The company is still unprofitable, despite the pandemic's general lift to its business and customer base. But does it have a path to profits? Piggybacking from our Coinbase S-1 analysis piece, let's ask five questions concerning Coursera's S-1 that we'll answer as we go.

• Has the company's freemium push been worth it? The freemium model is a popular strategy used by edtech companies to get a large top-of-funnel pool of free users, but the true test as a business is whether you can convert those costly unpaid users into paid customers. Coursera's historical performance provides key insights into how much this strategy, which edtech companies heavily relied on during the pandemic, costs and creates.
• Will nonconsumer revenues bolster its business health? Consumer revenue can be notoriously volatile, so we'll explore how Coursera's other offerings play into its overall business, and whether there is growth potential to be found.
• Does its work with universities to point to future profits? A big question for edtech founders is whether they should try to empower - or erase - colleges. Coursera launched a campus product during the pandemic to help colleges offer online instruction, but now we can understand if the company is too dependent on it as a revenue generator.
• Did the pandemic create enough momentum for online education to stay relevant? This is a question poised to never be fully answered, but we'll explore how one risk factor that Coursera outlined indicates its sentiment on its market's future, and what trust needs to be built between consumers and businesses.
• Will international revenue prove to be a big opportunity for Coursera? It's well known that consumer edtech spending in international markets such as China and India outpaces that of the United States. We'll see if Coursera's business shows that, or if there are shifting tides on the willingness of people within the States to spend on education.

Our work will help us grok not just Coursera's performance, but the health of other companies in the edtech space as well. So let's get into the numbers and work toward better comprehension of one of the most active categories in the startup world, that of turning technology to bear on the global education market.

Has the company's freemium push been worth it?

Coursera has two freemium lines of business, one targeted at consumers, and the other at a portion of its enterprise business, namely Coursera for Campus." In the case of the latter, Coursera made parts of its enterprise offering free to use during the pandemic.

We had two questions: First, can we track the impact of rising freemium usage on Coursera's growth? And can we weigh that growth against the costs of the service to compare the two? The answer to both is yes.

Regarding the impact of freemium on consumer usage, we can intuit from a sharply rising registered learner" count in recent quarters that offering a free tier was useful in filling the top of Coursera's funnel during COVID. Here's the data: From 2018 to 2019, Coursera's registered learner count grew from 37.3 million to 46.4 million. Then from 2019 to 2020, it shot to 76.6 million. The accelerated growth was aided by the pandemic, but made possible in part by the fact that there was no cost (no barrier to entry) to sign up for the company's mass-market offering.

On the enterprise side, we can track the growth of its university-facing work somewhat easily. Enterprise revenue - which encompasses Coursera for Campus, the product that added a free tier in 2020 - has grown in recent years. From 2018 to 2019, the top line from the segment grew from $26.8 million to $48.3 million. Then from 2019 to 2020, it expanded further to $70.8 million. And from 2019 to 2020, the number of paid enterprise customers grew from 240 to 387.

Here, it's harder to parse the possible impact of the freemium effort. From the numbers, you might wonder where the freemium model might have had an impact; Coursera added around $22 million in enterprise revenue during both 2019 and 2020, so can we find a bump at all?

It's probably yet to come. The company notes in its S-1 filing that its Campus Response Initiative [i.e., freemium move] enabled over 4,000 institutions globally, including approximately 10% of all degree-granting institutions, to tap into ready-made, high-quality digital curricula from leading universities with minimal upfront costs." Coursera goes on to note that it intends to convert those customers as part of its growth plan.

Summarizing: On the consumer side, we can see rapid adoption, and on the enterprise side, we see the potential to accelerate future growth.

That set of mostly good news was not cheap; the company's sales and marketing costs rose from 31% of revenue in 2019 to 37% in 2020. The company explained it spent $9.2 million more in 2020 than it paid in 2019 to host and support new, free users.

However, given that the company's full-year revenue was more than 30 times that amount, the expense seems to fit neatly next to the company's rapidly growing consumer user base that we feel was boosted by having a freemium offering; whether the enterprise side of the coin will convert is not yet clear, but having an option on future high-margin, low-churn revenues is likely attractive for Coursera and its potential investors.

A key question for edtech startups in the wake of the pandemic is whether a temporary increase of use will actually lead to long-term impact on adoption. Giving your platform away for free can always feel like a question mark; but in edtech, that organic, limitless consumer growth can help it land key enterprise deals eventually and a good reputation. For example, only 3% of Duolingo's users pay, but they are worth $180 million in bookings.

Coursera's general success with a freemium business model shows that top-of-funnel edtech, which is good for widespread adoption, can be a lucrative route for founders to consider.