Udemy (UDMY)

Online learning platform Udemy (NASDAQ:UDMY) reported Q3 CY2025 results exceeding the market’s revenue expectations, but sales were flat year on year at $195.7 million. On the other hand, next quarter’s revenue guidance of $192.5 million was less impressive, coming in 2% below analysts’ estimates. Its non-GAAP profit of $0.13 per share was 38.7% above analysts’ consensus estimates.

Company Overview

With courses ranging from investing to cooking to computer programming, Udemy (NASDAQ:UDMY) is an online learning platform that connects learners with expert instructors who specialize in a wide range of topics.

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.

Competitors offering online educational services include Coursera (NYSE:COUR), Microsoft’s LinkedIn Learning (NYSE:MSFT), and Skillsoft (NYSE:SKIL).

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Udemy’s 9.9% annualized revenue growth over the last three years was mediocre. This fell short of our benchmark for the consumer internet sector and is a rough starting point for our analysis.

This quarter, Udemy’s $195.7 million of revenue was flat year on year but beat Wall Street’s estimates by 1.4%. Company management is currently guiding for a 3.7% year-on-year decline in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.2% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

Buyer Growth

As a subscription-based app, Udemy generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Over the last two years, Udemy’s monthly active buyers, a key performance metric for the company, increased by 8.2% annually to 17,111 in the latest quarter. This growth rate is decent for a consumer internet business and indicates people enjoy using its offerings.

In Q3, Udemy added 263 monthly active buyers, leading to 1.6% year-on-year growth. The quarterly print was lower than its two-year result, suggesting its new initiatives aren’t accelerating buyer growth just yet.

Revenue Per Buyer

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 1.7% 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.

This quarter, Udemy’s ARPB clocked in at $11,436. It declined 1.4% year on year, worse than the change in its monthly active buyers.

For internet subscription businesses like Udemy, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer service, data center and infrastructure expenses, royalties, and other content-related costs if the company’s offerings include features such as video or music.

Udemy’s gross margin is ahead of the broader industry and points to its solid unit economics, competitive products and services, and lack of meaningful pricing pressure. As you can see below, it averaged an impressive 63.1% gross margin over the last two years. That means for every $100 in revenue, roughly $63.12 was left to spend on selling, marketing, and R&D.

This quarter, Udemy’s gross profit margin was 65.9%, marking a 2.9 percentage point increase from 63% in the same quarter last year. Udemy’s full-year margin has also been trending up over the past 12 months, increasing by 3.9 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs.

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 63.1% 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.

Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.

Udemy has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer internet business, producing an average EBITDA margin of 7.7%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Udemy’s EBITDA margin rose by 20.7 percentage points over the last few years, as its sales growth gave it operating leverage.

This quarter, Udemy generated an EBITDA margin profit margin of 12.4%, up 6.5 percentage points year on year. The increase was solid, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, Udemy reported adjusted EPS of $0.13, up from $0.07 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Udemy’s full-year EPS of $0.51 to shrink by 12.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Udemy has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.5% over the last two years, slightly better than the broader consumer internet sector.

Taking a step back, we can see that Udemy’s margin expanded by 15.4 percentage points over the last few years. This is encouraging because it gives the company more optionality.

Udemy’s free cash flow clocked in at $12.09 million in Q3, equivalent to a 6.2% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Udemy is a well-capitalized company with $371.2 million of cash and $11.97 million of debt on its balance sheet. This $359.3 million net cash position is 34.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Udemy blew past analysts’ EBITDA expectations this quarter. We were also glad its full-year EBITDA guidance trumped Wall Street’s estimates. On the other hand, its revenue guidance for next quarter missed and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 1.4% to $6.49 immediately following the results.

Updated: December 4, 2025 at 9:28 PM EST

Before deciding whether to buy Udemy or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Udemy isn’t a terrible business, but it isn’t one of our picks. To begin with, its revenue growth was mediocre over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its projected EPS for the next year is lacking. On top of that, its ARPU has declined over the last two years.

Udemy’s EV/EBITDA ratio based on the next 12 months is 8.7x. Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $9.67 on the company (compared to the current share price of $5.25).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.