Udemy’s stock price has taken a beating over the past six months, shedding 24.7% of its value and falling to $5.30 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Udemy, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Is Udemy Not Exciting?
Even with the cheaper entry price, we're swiping left on Udemy for now. Here are three reasons we avoid UDMY 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 1.7% 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. 
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 This projection is underwhelming and indicates its products and services will face some demand challenges.
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 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.
Final Judgment
Udemy isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 4.8× forward EV/EBITDA (or $5.30 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. We’d suggest looking at one of our top digital advertising picks.
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