What Happened:
Shares of online learning platform Udemy (NASDAQ:UDMY) fell 22.1% in the morning session after the company reported first-quarter results with ARR (annual recurring revenue) falling below expectations, though revenue beat by a narrow margin. Adding to the negatives was guidance. The company's full-year revenue and adjusted EBITDA margin guidance both missed analysts' expectations. Next quarter's revenue guidance followed the pattern and came in below Wall Street's estimates. Overall, this was a mediocre quarter for Udemy, and the guidance is sure to weigh on shares.
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What is the market telling us:
Udemy's shares are very volatile and over the last year have had 17 moves greater than 5%. But moves this big are very rare even for Udemy and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock gained 7.8% on the news that the company reported a "beat and raise" quarter. Third-quarter results surpassed analysts' revenue, gross margin, adjusted EBITDA and EPS expectations. Full-year revenue and adjusted EBITDA guidance came in higher than Wall Street's estimates and was raised following the impressive results. Similarly, revenue guidance for the next quarter came in ahead of expectations.
Udemy also announced a plan to gradually reduce the share of subscription revenue paid to instructors, starting at 20% in 2024 and ultimately reaching 15% by 2026. It was a doubly good signal for the business. One, it showed that it is becoming a standard in the industry and does not need high compensation to retain instructors--they will want to be on the platform since that's where students and learners are. Two, it will result in structurally higher gross margins that give the company a better starting point for operating profits and free cash flow. Zooming out, we think this was a great quarter, showing that the company is not just staying on track but exceeding expectations both near and longer term.
Udemy is down 21.1% since the beginning of the year, and at $11 per share it is trading 31.1% below its 52-week high of $15.96 from December 2023. Investors who bought $1,000 worth of Udemy's shares at the IPO in October 2021 would now be looking at an investment worth $400.00.
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