Q1 2021 Coursera Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Coursera is first quarter fiscal year 2021 earnings call. At this time, all participants are in a listen only mode.
Please be advised that this call is being recorded after the Speakers' prepared remarks, there will be a question and answer session.
Like to ask question. During this time simply press star followed by the number one on your telephone keypad. If you would like do we draw. Your question press the pound key I would now like to turn the call over to Cam Carey head of Investor Relations. Mr. Carey you may begin.
Hi, everyone and thank you for joining our Q1 earnings conference call.
With me today is Jeff Madrian Calder.
<unk>, Chief Executive Officer, and Ken Hahn, our Chief Financial Officer.
Following their opening remarks, we will open the call for your questions.
Our press release, including financial tables was issued after market close and is posted on our Investor Relations Web site, where this call is being simultaneously webcast.
Additionally, downloadable versions of our prepared remarks and supplemental slides have also been made available.
During this call we will present, both GAAP and non-GAAP financial measures a.
A reconciliation of non-GAAP measures to their most directly comparable GAAP measure can be found in today's press release and supplemental presentation, which.
You are distributed and available to the public through our Investor Relations website, located at Investor Day, Coursera Dot com.
Please note that all growth percentages refer to year over year change unless otherwise specified.
Additionally, I'd like to remind you that all statements made during this call that relate to future results and events are forward looking statements based on current expectations actual results and events could differ materially from those projected due to a number of risks and uncertainties, which are discussed in our press release SEC filings and supplemental materials we have.
Assume no obligation to update our forward looking statements.
With that I'd like to turn it over to Jeff.
Thanks, Tim and good afternoon, everyone welcome to our first earnings call.
I've been a CEO for almost 25 years and I've never been so excited about spending my time and talent to help build something so important coursera was launched in 2012 by two Stanford computer science professors, Andrew and Daphne Koller.
They put a few computer science courses up on the Internet and they were stunned when more than 100000 people signed up.
These learners came from around the world for many countries across many age groups and from many walks of life.
And most important they included people who did not otherwise have access to a great education.
Our number one goal has been and always will be to serve learners.
Now since those early days Coursera has grown into a global learning platform with 82 million registered learners at the end of Q1 our.
Our mission is to provide universal access to world class learning so that anyone anywhere has the power to transform their life through volume.
Today I am pleased to report we are delivering on that mission.
We grew revenue, 64% to $88 $4 million.
Each of our business segments consumer enterprise and degrees saw strong double digit growth, reflecting the continued trend of individuals and institutions embracing online learning to develop skills for a digital future.
In particular, we saw strong demand for our entry level professional certificates that are redefining the opportunities people have to get jobs.
<unk> with no college degree or background in the field are coming to coursera to earn a professional certificate and to learn the skills needed for an entry level digital job in less than a year.
Professional certificates can also provide access to career pathways, which connect these learners with hiring partners looking to fill open digital roles with candidates from non traditional backgrounds.
But it's not just career pathways. Coursera also offers degree pathways to learners, who complete certain entry level professional certificates with our University partners able to award academic credit towards a college degree.
Programs like this powered by institutional collaboration between universities businesses and governments.
Now anyone to develop skills online at low cost RNA professional certificate get a job and then start their degree while working.
This is what the future of learning looks like for many adults and it is being driven by several global fundamental forces at play.
Our world is accelerating driven by technology and globalization the force of technology, especially the Internet cloud computing, social media mobile and AI is transforming industry after industry.
And just about every person and every job needs to keep learning throughout their life to stay relevant in a fast changing workplace.
But higher education, one of the largest industries in the world at $2 trillion.
Has seen relatively little innovation over the past three centuries.
Traditional college degrees are not affordable to many people.
They are monolithic four year structure doesn't meet the needs of lifelong learners.
<unk> often lack relevant to today's employers.
They are not designed for working professionals, who don't want to quit their jobs are moving their families to a college campus in order to get a college degree.
Coursera is a platform that is enabling the digital transformation of higher education and adult learning more broadly.
Our platform is transforming the way learners learn it is transforming the way educators teach is transforming the way employers upskill and reskill their employees.
And unlike many other platforms coursera has more enabler than disruptor, because coursera works directly with leading universities in higher education to enable them to do a better job meeting the needs of all learners in this new digital world.
We believe the world These high quality education to be more accessible.
And the need for this kind of change has never been more urgent.
One 3 billion people around the world are projected to reach working age over the next 10 years and they will be entering a labor market that looks nothing like what we've ever seen before.
The world is becoming more digital and jobs that are repeatable and predictable are being automated by technology.
Jobs, most at risk of being automated like freight movers retail clerks and waiters are typically held by lower skilled workers, making lower wages vs.
Or also the job that have been most impacted by COVID-19.
The pandemic has accelerated trends that have been at play for decades.
<unk> been fast forward it to a new normal of online learning digital skills digital jobs and remote work, 84% of employers report that the pandemic has increased their intent to rapidly digitize work processes.
And businesses and governments around the world are looking to Upskill people, so that they have the knowledge skills and the credentials to enter digital jobs.
We believe that the Coursera global learning platform is designed to meet this challenge with a number of advantages over other players in the market that now I will discuss in more detail.
First is our educator partners.
Coursera has a three sided platform that connects learners educators and institutions and a global learning ecosystem.
Our large growing learner base and global brand makes us an attractive partner to educators, who want to reach a global audience of learners and deliver high quality affordable education at low cost.
More than 150 universities and 60 industry partners have come to Coursera to teach the world and we.
We're proud to have recently welcomed more including 10, New University partners spending low from the U S and Latin America to the Middle East and Asia and.
And just last week, a new collaboration with industry partner, Microsoft with a beginner specialization on Microsoft Azure to help kick start our learners cloud providers.
Additionally, our enterprise channel allows these partners to also address the evolving needs of the workplace.
More than 6000 institutions businesses governments and campuses have used coursera to upskill and Reskill individuals and data science cloud computing business and many other skills required to compete in today's economy.
Whether learners need to quickly grasp a new skill at work or pursue life transforming degrees at their own pace.
<unk> of our global ecosystem allows industry and University partners to continuously deliver more job relevant skills content and credentials and to do this at greater scale and lower cost.
The second Big advantage is our content catalog.
Our stackable system, a branded high quality premium content enables us to attract learners at low cost and serve them at a range of price points from free to $45000 per a masters degree.
Content on Coursera is modular and stackable designed to meet the needs of learners across all stages of their lifelong journey.
Bite sized learning like hands on projects and short courses conveyed towards a broader course of study such as a professional certificate or multiyear accredited Bachelor and master's degrees.
And our catalog of World class branded content and credentials continues to grow.
Coursera Conference last month, I was proud to announce some exciting new products from our educator partners, including five new degrees from leading international universities, including the first degree programs on Coursera from universities in Brazil and India.
Six master track programs from leading universities around the globe, including our first Master track program from an Ivy League University, our first Spanish language business Master track Certificate and our first Master craft program from Australia.
And three additional entry level professional certificates from leading technology companies, including IBM and sales force for today's most in demand skill.
With these recent additions the Coursera catalog now includes over 1000, guys are projects that offer hands on loans.
More than 5000 courses and 550 specializations.
Over 40 certificates, including professional certificates that required no college degree.
And now 30 bachelor's and master's degrees.
The final competitive advantage I'll mentioned is innovations to our learning platform.
To further enhance the learning experience on Coursera and make it easier for educators to create in demand content. Our product team continues to introduce a number of new platform innovations.
For learners, we're introducing real time personalized content recommendation preferred language subtitled translations for over 2000 top horses and WK two one double a accessibility that support both desktop and mobile experiences for learners of all abilities.
Innovations for educators include scalable tools to author content efficiently and effectively including upload based offering and LMS content ingestion to coursera, which speeds up the offering process and.
And innovations for institutions include the data Science Academy and skill sets to help organizations develop measure and benchmark skills.
Individually, our key advantages, including leaving educator partners World class branded content and credentials and continuous product innovation increased scale reduced acquisition cost and increase the value of customers on coursera.
But the real power is the way that these advantages reinforce each other on Coursera is unified platform and produce a flywheel effect as a growing selection of content and credentials attracts more individuals and institutions, which in turn motivate educator partners to create more content and credentials.
We believe that the shift in higher education is only in the early innings and.
And we see many opportunities to drive growth for Coursera in the coming years and decades ahead.
First we will continue to invest in our growing enterprise channels, using a land and expand strategy that focuses on acquiring new customers and efficiently growing our relationships with existing customers.
In particular, we launched our Coursera for campus offering only recently in October of 2019, and we see a large market opportunity developing as universities and colleges around the world turned to online learning to help keep pace in a digital world.
Second on the degree side, we will look to grow the number of students in current degree programs and to expand the number of degree programs offered on Coursera.
Today more than 160, <unk> University partners, author courses on Coursera, but fewer than 20 of them currently offer degree programs on Coursera we.
I believe there was a big opportunity for many more University partners to offer degree programs on Coursera.
Third we will continue to grow our learner base and build our brand investing in increasing the number of registered learners on our platform.
We will also continue to grow our content and credentials catalog and our network of educator partners.
And finally, we are seeing some of our fastest growth in emerging economies.
And we will invest in localizing certain content pricing payments and content discovery.
When I look at the fundamental trends driving our growth.
Branded high quality content World class educator partners and a scalable platform model continuously delivering new innovation.
I believe that Coursera is in a unique position to deliver the in domain skills programs and degrees, our learners and learners around the world need today and going forward.
And now I'd like to turn it over to Ken to discuss our financial results in more detail.
Kevin.
Thanks, Jeff.
And Hello, everyone.
Our first quarter performance marked a strong start to the year as we continued to build on the robust momentum we saw throughout 2020.
Total Q1 revenue of $88 4 million was up 64% as compared to the year ago quarter, driven by strong execution across all three of our business segments.
For the remainder of the call I will discuss key operational metrics as well as non-GAAP financial measures, excluding pro forma adjustments unless otherwise noted.
Gross profit was $49 6 million up 71% from a year ago and represented 56, 2% of revenue.
Net gross margin percentage was approximately 230 basis points higher than the year ago quarter.
Let's look at the two components of our cost of services and how they have changed in the past year the free.
First is our content costs.
Content cost will vary depending on the revenue mix amongst our segments and the content margin rate for each of these businesses.
To illustrate the effect of mix shift in rough terms, our consumer business at 57% content margin. Our enterprise business is a 68% content margin and our degree business is 100% margin given it has no content costs. So the relative mix of volume affects our overall gross margin rate.
Over time, we expect this to be a significant driver of our overall financial performance and profitability as our enterprise and degrees segment become a larger portion of our total sales driving structurally expanding gross margins.
The content margin percentage rate for each of those segments can also vary.
This quarter, our consumer segment content margin rate increased from 54% to 57% year over year due to a larger consumption of lower revenue share content.
The second component of cost of services is non content costs.
On a year over year basis, our non content costs decreased as a percentage of total revenue from $10 seven to nine 7%, resulting in a 100 basis point improvement in overall gross margin.
Next I'll provide some details of our operating expenses, but first I'd like to be sure. We are clear about definition is related to stock based compensation.
In Q2, we expect a large stock based compensation charge associated with restricted stock units for which amortization began with the completion of our IPO.
The non-GAAP income statement measures that follow in today's remarks exclude stock based compensation and related payroll tax.
Please refer to the reconciliation of GAAP to non-GAAP results in the appendices of our earnings release and supplemental presentation for additional detail.
Total operating expense was $62 7 million or 71% of revenue compared to 76% in Q1 of last year.
Sales and marketing expense represented 35% of total revenue down from our prior 37% as there were lower investments in media spend in Q1 this year.
We expect our overall sales and marketing expense in 2021 to represent a similar percentage of total revenue as in 2020.
Research and development expense was 23% of revenue versus 27% in the year ago period as our strong growth has provided higher leverage.
We expect our overall R&D expense in 2021 to represent a similar percentage of revenue as in Q1 of this year.
General and administrative expense was 13% of revenue versus 12% in the prior year given personnel consulting and systems investments ahead of our IPO.
We expect this higher expense as a percentage of revenue to continue in 2021.
Net loss was $13 4 million or 15, 1% of revenue and our adjusted EBITDA loss was $10 1 million or 11, 5% of revenue.
We have been consistent in our communication that 2021 will be an investment year focusing on growth.
Learner base through sales and marketing expanding our content offering and driving innovation on our platform.
We anticipate that will continue to incur losses for this foreseeable future that we plan to incrementally demonstrate scale and leverage on an annual basis.
Free cash flow was a use of $8 6 million or $1 3 million better than the $9 $9 million figure a year ago.
Looking at the balance sheet, we ended the quarter in a strong cash position as of March 31, we had over $280 million of unrestricted cash cash equivalents and marketable securities.
On a pro forma basis, taking into account the $525 million of net proceeds from our IPO. We closed in April total cash equivalence and marketable securities would be over $800 million with no debt.
Regarding capital allocation, we are in the early stages of our lifecycle and believe we have substantial growth opportunities ahead of us we intend to continue to invest aggressively to pursue these opportunities and ensure ongoing scaling and leverage in our business model.
Turning to our business segments, we reported results in three segments consumer enterprise and degrees.
While each segment benefits from a unified platform of content and credentials technology and data. They are unique and how revenue is generated and the associated segment margin, which we define as segment revenue less content costs and our audited financial statements.
First let's discuss our consumer business consumer revenue was $51 9 million up 61% year over year on broad based strength across all regions and strong initial adoption of recently launched professional certificates.
While we have a freemium model, where learners can view course lectures and other content and no cost we earned consumer revenue when a learner purchases of specialization or professional certificates subscription subscribed sequester era, plus or pays for certificate of completion.
Segment gross profit was $29 7 million or 57% of consumer revenue as we benefited from a lower content cost rate during the quarter.
Our consumer segment is important because it serves as top of funnel source for our enterprise and degrees segments, and we added 5 million new registered learners during the quarter for a total base of $82 million.
Next is enterprise enterprise revenue was $24 5 million up 63% with strong growth in new and existing customers across all institutional categories.
We earned enterprise revenue when these institutions businesses governments and campuses purchased seat licenses that provide access to our partners courses specializations and professional certificates and order to Upskill and reskill their employees citizens and students.
Our net retention rate for paid enterprise customers was 113%.
Segment gross profit was $16 6 million or 68% of enterprise revenue, which was slightly lower on a percentage basis in the prior year due to a lower content cost rate in Q1 of 2020.
And finally, our degree segment, we earned degrees revenue when learners take a University degree program hosted on Coursera. Our degrees revenue was $12 million up 81% as prior student cohort scale and new students embrace our expanded offerings.
With the recent announcement of five new degree programs. Our portfolio. Now includes 30 degrees from University partners spanning the globe from the U S and Latam to the Middle East and Asia.
And our total number of degree students reached 13493 up 88% from a year ago.
Segment gross margin was 100% of decreased revenue as there is no content cost attributable to the Greek segment students pay tuition directly to the University and the University pays us a fee based on the amount of tuition.
Now moving on to our financial outlook with fairly good visibility into the revenue on a quarter to quarter basis, particularly in our enterprise and degrees segments. However, we don't have perfect visibility as revenue in our consumer segment is impacted by our large and growing registered learner base, where individuals can pay in the form of one time single courses.
Or as a subscription.
For Q2, we're expecting revenue to be in the range of <unk> $89 million to $93 million. This represents a growth rate of 23% at the midpoint of the range versus Q2 of 2020.
As a reminder, next quarter, we will begin to lap difficult compares from the onset of the COVID-19 pandemic in Q2 of last year, our revenue grew more than 60% from the prior year.
Adjusted EBITDA, we're expecting loss in the range of nine five to $12 5 million, which translates to an adjusted EBITDA margin of negative 12% at the midpoint.
For full year 2021, we anticipate revenue to be in the range of $369 million to $381 million.
Representing nearly 28% growth at the midpoint of the range.
Adjusted EBITDA, we're expecting loss of $45 five to $52 $5 million or an adjusted EBITDA margin of negative 13% at the midpoint.
Our outlook for full year 2021 reflects additional investments in personnel and related costs sales and marketing and product development as well as incremental general and administrative costs associated with being a public company.
We manage our business for the long term and do not plan to optimize for any single quarter, we run our business on an annual cadence for expenses and adjusted EBITDA as our business growth, we intend to continue to invest as we see opportunities to expand our competitive modes, we plan to pursue growth opportunities and the transformation of <unk>.
When learning, while also demonstrating scale and leverage over time.
The forecasting Geoff for closing comments I'd like to summarize several highlights of our business model first in addition to the rapid sales growth. We are experiencing we expect to have clearer forward visibility on our top line in the years ahead as our mix of revenue evolves, including a greater contribution from the enterprise and degrees segments.
Within enterprise our annual recurring revenue is growing strongly with customer cohort growth that increases predictability over time. This includes early customers along with the layering of new customer cohorts as we sign multi year contracts.
Additionally, our degrees business has even better forward visibility given that we still student cohorts from one academic year to the next and the revenue naturally and predictably builds.
Second we believe we will have ongoing structural gross margin expansion over the long term driven by mix shift to higher margin business and by our scaling platform.
Finally, our business benefits from a freemium model, which enables us to attract new registered learners at low acquisition cost through the power of Coursera platform and the brands of our partners.
As learners are attracted coursera for free projects and course lectures, we are able to match them with personalized learning opportunities based on their background and goals, including higher value degree and certificate programs that support our high margin businesses.
In summary, we're proud of the business, we've built and we're just getting started.
With our key advantages, we see a significant opportunity ahead of us to attract new learners institutions and educators across our platform.
Rapid lead grow revenue and expand our margin profile over time.
And with that I'll turn it back to Jeff.
Before we open the call for questions. Let me leave you with a few thoughts.
We believe that learning has the power to transform our world.
From illness to health from poverty to prosperity and from conflict to piece.
It has the power to transform our lives for ourselves our families and our communities.
No matter, who we are or where we are learning empowers us to change to grow and to redefine what is possible.
We believe that access to education creates more equal opportunity.
Equal opportunity creates a more just world.
That's why in February Coursera became a B Corp, which means that we have a legal duty to balance shareholder needs with the needs of society more broadly.
We announced more than 18000 scholarships for underserved learners with Facebook, Google, Microsoft Goodwill Black Girls, who code and women and cloud.
And on April 27th time magazine included Coursera, and it's 2021 100, most influential companies list alongside companies like Tesla Airbnb, Spacex and door Dash is.
It's a testament to how the world views Coursera has ability to impact lives and impact the world.
We embrace this responsibility wholeheartedly and we always have.
The desire to help to serve to move humanity forward was the reason that Andrew and Daphne starting coursera in the first place.
It's what has drawn our employees to join Coursera and inspires us to work so hard every day.
And it is what has attracted leading universities and companies to join us in our mission.
If we can unlock the full potential and every person we will help transform lives and we will help transform the world.
With that let's get to Q&A could you. Please introduce the first question. Thanks.
And as a reminder to ask question I need to press Star one on your account soon again and see the non cash question first.
Thanks Allison.
As for our first question, we have Josh Baer from Morgan Stanley Josh Your line is open.
Great Congrats on a very strong first quarter.
My question is on.
The COVID-19 relief efforts and.
As it relates to the enterprise side and just the timing of those efforts wondering where are we as far as the monetization potential of converting some of those institutions.
From free to paid.
Yes, Josh Thanks for the.
<unk> this is Jeff and.
Obviously, we started doing the work force recovery initiative back in March of 2020, and then the workforce the cash.
His response was first with the campuses and then the workforce recovery was with governments and that was in April I would say that we are starting to see.
And acceleration of uptake in the conversion of those free work force recovery relationships with government agencies that seems to be happening at a bit of a quicker pace.
And I think one of the big reasons is the level of unemployment and the urgency of getting people back to work and into new digital jobs is definitely higher now than it was a year ago. Another.
Another thing that we're seeing is that most seems to me at least that most government agencies didn't have experience with online training programs. I mean, they were doing kind of the old way. They were all force to embrace online based workforce development programs I think they are seeing that.
Modern is how effective those have scale of it is how cost effective it is how well it works in the pandemic environment is all working pretty well so we're pretty good.
With the conversion efforts there on the campus response initiative.
We think it's a bigger opportunity just in terms of the number of institutions out there we continue to move along but different regions around the world have different policies regulatory stances faculty at different levels of influence and power I'd say, we're making good steady progress. It is not in Q1 like a hockey stick of <unk>.
Version on the campus side, we're seeing good steady conversion of the pipeline that we have built in 2020.
Great. Thanks, Jeff if I could just ask a quick one on degrees. We know segment margins are 100% I was hoping you could talk through some of the other costs of degrees.
Does opex look like for that segment. Thank you.
Sure Josh.
Welcome.
So we do not plan to breakout specific cost of course on the different segments at the operating line, but to describe discuss the structure.
And what it looks like.
The biggest cost of the biggest group supporting that effort is the University partnership people, who both bring in new universities expand degrees and operate and help on a day to day basis with those clients with those universities.
To ensure that they have what they need.
So there is a group dedicated to doing that and that lives in our operating expenses.
Another thing I'll just add Josh is as you can probably imagine we're a technology company and so we love love seeing human processes that are automated <unk> and so we don't only build technology that is learner facing we're doing a lot on the backend to automate the capabilities associated with serving degree programs and I'll also just point to.
I think a pretty big accomplishment that Andrew and Daphne and the team and the early day has got to which is for the most part when you look at course authoring just single course does not degrees, but single courses of which there are now over 5000 those are pretty much all self serve pretty much our partners just they know how to use the tools the professors not author the author.
They post it goes through our QA process, but for the most part that is self serve and we can see a lot of leverage over time as it relates to building more scalable repeatable automated processes on the degree side as well.
One general add on to that which is why we haven't broken out. These various cost is because and it's part of the overall business model that benefits and helps us scale differently than other competitors is the fact that that technology is used across all of the businesses and so the only distinct one is the university partner people.
For that segment.
Great. Thanks.
Yes.
Our next question, we have Stephen Sheldon from William Blair Steven Your line is open.
Yeah, Hi, Thanks for taking my questions and congrats on the successful IPO and strong first quarter.
First I guess within the enterprise segment really strong trends there this quarter, a nice acceleration in paid enterprise customer growth.
Can you maybe give an update on the size of the direct sales force there and the trends youre seeing in productivity, especially for the additions we made to day enterprise sales force in the second half of 2020.
Yes, I guess, what I would say Stephen I don't know if you want to put any sort of financial color on this but we did take a reasonable amount of the.
If you will the COVID-19 tailwind surplus net arrived at our door in Q2, and Q3, primarily and if you looked at our sales and marketing numbers in Q3, and Q4 that reflected a pretty reasonable ramping of our direct sales team. We are on track with respect to training with respect to hiring we are on track with.
Two ramping.
We're feeling good about our progress here and.
We expect that this is giving us the capability to continue to close a lot of the opportunities that we're seeing in the enterprise space. So all of that stuff seems to be coming right along schedule, Ken anything you'd add to that net hiring.
<unk> been consistent plant and we pay a lot of attention to that because its sales capacity you asked the question for an obvious reason and we're right on track with our sales capacity on the enterprise growth.
Thanks, Great to hear.
And then just continuing to see advertisers from Coursera and different media types. So can you maybe talk some about plans for marketing spend over the remainder of the year.
Much that could be helping brand awareness and the endpoint and more registered burners and the consumer segments.
Sure last year in Q4, not unlike some of the additional investments that we made in the direct sales force. We also made some investments that were somewhat atypical in the portfolio of marketing mix that we took to market. We had an interesting and I think very cool co branded campaign with Disney So we.
We ran more television than we had in the past just to kind of see in different markets and different things.
What might be the ROI.
Let us it left us feeling that we really love the basic freemium model I mean, it is hard to really.
Build cost effectively awareness and brand, which just advertising dollars. So I would say that through those experiments and as you see us rolling into 2021 here, we are going to go with our pretty standard marketing mix that we've been doing so far pretty highly leveraged love is just the freemium model high SCO.
Word of mouth, some affiliate marketing, which seems to do pretty well with the our partners content and credentials, but generally speaking more in line with the kind of sales and marketing that were doing earlier in 2020 than we were in the later part of 2020 and you might see.
Mort sort of TV advertising as it might be the case that you are just noticing them more.
We're not really pushing heavily dollars against that channel, Ken anything you'd add to that.
Well Stephen I'm very glad you asked the question actually because we didn't have a Q4 earnings call because we werent a public company.
We're hitting on something that will be a recurring theme, which is that as we plan our expenses on an annual basis, we want to show leverage in the business and we plan to see EBITDA margins getting better year to year, we're not going to focus on that quarter to quarter and discussion. We're having right now around Q4 is spot on we.
To do that again in the future, we're going to manage the business to show more leverage and to get better on an annual basis, but in between we may experiment and accelerate our within that band and accelerate our spending so we make sure. We capture this mark right and so anyway I wanted to take the time to make that point. So everybody knows what we're doing going forward since we didn't have in Q4.
Our earnings call.
Makes sense. Thank you.
Our next question, we have Terry Tillman from Suez Terry Your line is open.
Yes, hey, everyone.
Congrats on the IPO and also in the quarter, Hi, Jeff and Ken maybe the first question.
I'll just throw it out there in terms of the specialization of the special certificates.
Maybe an update on how meaningful this is as a proportion of the business.
Where you see some of the most.
<unk> traction and how does Microsoft fit into that so unfortunately that was a three part first question I have another one behind it.
No no worries yeah. So as we think about specializations. These are a product that was launched right around 2014. It was one of the first times that the.
The monetization of Coursera started taking off and I think that sort of a secret sauce on that the first specialization with Johns Hopkins data science specialization that was either four or five course series at a time, where it was really difficult to earn any kind of credential with data Science day. It was one of the first available that attracted a lot of more advanced data.
Science learners onto Coursera and they were going for these specializations. When you think specializations generally be thinking business technology and data science often comes from universities, often at the more intermediate or advanced levels.
Theres another type of product, which is very similar is also a multi course.
Series, a subscription base, which our professional certificates vs generally come from our industry partners not universities and there is a certain type of professional certificate, which is the entry level professional certificate.
These are the ones created by Google and.
And Facebook has got a social media marketing and IBM has got a number of them in cyber security Theyre. All basically assuming that you don't have a college degree you don't have any background on the field and they are teaching you online in less than a year the skills that it takes for an entry level high demand well paying jobs. Those are the those those entry level professional certificates.
Our what we are seeing a lot more uptake across almost every segment consumer business campus and government and what we think is happening is a couple of things. One is the portfolio is getting bigger. So this time last year, we had two we had.
IBM data science for an entry level data science position and we have the Google support certificate, which was really the first at the reference professional certificate if you will.
Now we have 13 live and they cover many more different careers and they also include.
Since then one from sales force, we've announcement with Intuit.
And.
And bookkeeping.
One from Facebook and social media marketing, we just went live in Q1 with three additional entry level certs from Google. So UX design software project management and data analyst and Theyre All again no college degree required.
These are really I think the larger portfolio and a higher incidence of unemployment and people post pandemic really thinking I got to get myself into a digital job.
Is really seeming to resonate so we put a little more texture around this in the script we are seeing some.
Some nice numbers here and we think that this is going to be well suited for the environment that the job market environment that we see now and probably for many years to come.
That's great and maybe the second question.
I thought it might be easy, but maybe it's not an easy one so I don't know if you want to give us the Ken.
Take the vitality of the consumer business going forward.
The registered learners I mean, you saw our adding a nice amount obviously its not quite that the COVID-19 levels, but we're going to get the question a lot about post COVID-19.
If there is such a thing kind of how does the vitality of our consumer segment look so whether there was a commitment to double digit growth or just what can you say about the ongoing vitality, particularly because of the international opportunity on the consumer segment. Thank you.
Yes. It is a tough question so I'll turn it over to Ken Let me, let me give me a real quick here's how we think about it in the long term the longer term I really want the top of funnel. The number of registered learners to be generally pacing with the business and so generally we want to grow 30% or more per year. So we want to do.
Definitely double digits.
That number over the longer term of course, you can generate more revenue by getting conversion rates higher and getting a mixed shift and things like that so.
If we have more.
Products to monetize you get higher conversion rates, you could have higher LTM.
If you.
I mean, LTV, if you get people buying say things like degrees at a higher average selling point. So I'd say overall, we do want to be growing the top of funnel I think on the revenue side of the consumer segment a lot of it will be these career oriented credentials, that's where we think that the strength and vitality of the revenue.
<unk> will be and.
And again in a world, where unemployment is a pretty big issue and a lot of the world's just switching towards digital jobs, we think that that will provide.
At least double digit longer term growth rates.
On the Roadshow historically, it's been mid teens high to mid teens.
We think we should be able to do that and better for some time.
Thank you.
For our next question, we have Ryan Macdonald for me Dan Ryan Your line is open.
Yes, Thanks for taking my question congrats on the quarter, Kevin and Jeff I wanted to start in the consumer segment, you talked about pro search being quite strong in the quarter low.
To understand how a free to paid conversion has been trending in the quarter and if youre seeing any improvements there and I guess on top of that.
Coursera plus contributed to any of that success at all.
Yes, I'll do it at a high level and then I'll see if Ken wants to put any financial texture on it.
So the professional certificates one of the things that we're noticing about these although we launched the Google It certificate with Google in January of 2018, we had a pretty thin portfolio. We had two of these things and so we didn't have a lot of data is still early days one.
One of the things I think is quite interesting is when we think about who's buying these from the time in 2018, when we launched the first one well over 75% of the people that bought that first one came from off platform. There were there were new to Coursera.
There has been an interesting phenomenon that obviously happened in 2020, which is a lot of people came to coursera because they wanted to try online learning for the first time, they're not necessarily like advanced data scientist as a broad swath of society across many countries and there is a question of like well are they equally monetize able not clear whether they're equally monetize.
But I will say that as we've launched more of these professional certificates are higher and higher percentage of the monetization is coming from on on platform learners, who are who are more of your sort of representative learners post COVID-19 than it was in the early days of Coursera and we are seeing that generally speaking when someone's thinking about change in cash.
<unk> the Roe.
<unk> that theyre signs are that the commitment that they are assigning to add the value that they're signing two it is causing them to be more a higher propensity to pay so relative to a general average course. These entry level professional certificates do seem like they are a pretty compelling value proposition to the typical everyday learner who.
Aimed to show up on <unk> in 2020.
Ken anything you'd add to that and then ill so Ryan on the Coursera plus side.
We're seeing good results. There. This is for those of you on the line who aren't so familiar it's kind of a little bit the Spotify model, where with one subscription fee you get access to all of almost all of the courses from our partners on Coursera.
Our mostly statements as a payment mechanism that can facilitate different types of offerings.
We have seen certain types of learners, who maybe are wanted to sample across specializations, our professional certificates say a job seeker who's not sure if they want to do it or do I want to do marketing or do I want a new cyber security the ability to explore the catalog is obviously facilitated by Coursera plus and so it does look.
Like this will be a tool for certain segments at certain times in the consumption phase and so we like it it's not necessarily like going hockey stick in Q1, but it is a useful tool to have its helping us and in the future. We hope to find ways that can help us even more.
Okay great.
Alright, great and then as a follow up just on the enterprise segment. It looked like a near record quarter in terms of new paid enterprise edition, just curious what the rule of Coursera for business had in that strong strong additions and what youre seeing or hearing from from enterprise organizations in terms of prioritizing reskilling and upskilling. Thanks.
Yes, so on the enterprise side, I mean, I would kind of say.
It's useful to look at the number of paying customers, obviously customers come in all shapes and sizes, some with very large franchises somewhat smaller.
Some are buying more expensive stuff and some buying less expensive. So I think it is a useful metric I wouldn't look at it too carefully there could be a quarter thats really greater net number doesn't look so good or vice versa.
I think that a lot of what thats, reflecting is a combination of businesses and governments and campuses all really thinking about Oh my gosh. The world is really changing it comes back to employability, but from a slightly different angle the businesses know that they need to be competitive. So we have seen and this was from the world Economic Forum survey businesses, saying because.
The COVID-19 and just generally the rise of AI in digital transformation, we need to move faster in scaling people, we've not seen that abate, but in addition governments seem to be much more interested now than they were pre pandemic about using skill training programs online to get people re employed so we've done.
<unk> seen good uptake there and I'll also say campuses.
In a more difficult job market a lot of what.
Students individual students are really looking for is should I spend my dollar is paying tuition for four years or so in the hopes that you can get a better job and a better wage on the one hand, it's a tougher job markets you want a credential that distinguishes yourself on the other hand, you really want to make sure that it actually enhances employability in Coursera for campus, we see the <unk>.
Proposition of students employability really resonating in a way that it didn't when we launched the product back in October 2019, So I'd say long answer to say, yes, generally speaking a tough labor market is creating demand across all three types of enterprise institutions businesses governments and campuses that seems to be.
Given some some good tailwind behind us there Ken anything you'd add on that.
Yes.
Sure.
Excellent. Thanks for taking my question and congrats again.
Thanks, Ron.
For our next question you have Ya Qin from loop capital markets. Your line is open. Thank you congrats on a solid start to the year Catherine Ken Hi, Jeff just just a high level strategic question around the international market opportunity I am assuming that you are seeing a different.
These are the dynamics of a learner dynamics conversion rate and preferences.
Between U S and international users.
And I'm also assuming there's a considerable difference in LTV lifetime value between U S and international learners.
Can you just talk about how you are balancing the different economics and dynamics between the two different types of learners and your business, especially in regard to the acquisition model. Thanks.
Yes, absolutely thanks, Jim.
So.
A simple high level kind of first principal way that we think about this is at different stages in someone's life and also if you think regionally at the stock of human capital. If you will in a given region, it's about creating human capital and then through employability, turning those human capital skills and knowledge.
Et cetera into financial capital and if obviously, we don't have a financial capital Youre not going to see very high conversion rates and a lot of not a lot of money, but in the longer term, we see that a young person in high school or college Youll stay on underwriting college, although they came up by a lot of stuff right. Now in fact, we often go into debt when they fund their education over their lifetime.
There might be reasonable economic value to us if we can supply their lifelong learning needs. So when they're building human capital they will be a little bit harder to monetize but as they start development of human capital start, making some income and then reinvest some of that income into future human capital development, that's when they buy a bachelors degree.
That's when they buy a master's degree or that's where they buy an advanced specialization, we think that the conversion could be better.
So similarly, when you think about it as a region. If you think about China. If you think about India. If you think about Latin America and.
So early stages, but Africa.
Regions are building stocks of human capital and as the Middle class rises typically they start putting more of their disposable income into education.
But it's a long process I mean this is not an overnight thing. So today, what we see is the highest conversion rates in our highest percentage of revenue across every segment of our business coming from North America and Europe. Those the developed economies. They have the disposable income they are making.
They are making the money to spend it over the longer term, though we are working on building the funnel at low acquisition cost like almost free acquisition cost because thats. The only way you can really do it in these emerging markets often through government and institutional partnerships to really keep our acquisition cost low.
And then we hope to build LTV and conversion as those regions mature as the middle classes grow as disposable income rises and a greater attention is focused on not only learning, but also learning credentials.
A really high level the way, we think about it today I'd say, we're still in the early stages, where higher conversion and higher <unk> coming from developed economies, but we think the long term play is more global than that.
Just one miner.
Hi, Ian.
This is Ken so what tech on one minor increment on the consumer piece itself.
Beyond the institutions, which have been great also we're getting credit for Seo search right as we build the rest of it. The reason we have so much traffic is the quality of the content, we have and the links to the universities. So when these topics come up in our Seo search consumers are naturally drawn to the site. So once again building on free content SCO.
Search as well as general brand awareness word of mouth.
Yes.
The secondary piece of the building of that funnel.
Yesterday's space that's.
That's great Ken Thanks, so much for that so.
Along that line.
Ken was there any material change in the paid versus organic new loans.
Linda acquisition mix this quarter and how do you expect that to trend for the remaining of the year.
There were not any notable differences this quarter.
Haven't provided projections, it's an independent.
Efforts.
The marketing group primarily.
Kicks off.
Not much to say on future plans, but it's been consistent historically last couple of quarters.
Okay, great. Thank you so much.
Alright, Thanks Ann.
And for our next question, Jason <unk> from Keybanc, Jason Your line is open.
Hey, guys. Thanks for taking my questions and hear from everyone.
Maybe a follow up to a previous question as enterprise budgets recover this year and spending for a new version of hybrid work emerges.
Seeing any uptick from any customer margin tailwind for the enterprise business right now.
Yes, Hey, Jason This is Jeff I would say that not necessarily.
Seems like in EMEA right when COVID-19 happened, there's a lot of emergency government action like don't fire people don't furlough people like here's money train people keep them engaged do what you need to do I don't know that that budget was necessarily coming from the employers, but it was subsidized by by mostly EMEA governments that is starting to now.
Taper off it seems and now companies are stepping back in and saying, Okay. We're getting we're reopening we're getting back to business and we need to be scaling our folks. So I don't want to say, it's a wash because that would make it sound too precise I just would say that overall, we haven't seen like a big opening of the wallets as businesses have been coming back online I think it's been pretty steady.
Okay.
And then your academic partners may likely know Youre in learner base comes like 80% comes from outside the U S or at least I hope.
But for your U S colleges that you work with if they do in fact look to digital learning as a way to diversify and test new markets and students when they look to international students for these digital offerings or is that more or how do we think about that opportunity.
Yes for sure I would say one of the primary the primary the biggest value proposition that we offer to educate our partners is reaching a global audience, both individuals and institutions, but frankly a lot of it is individuals.
And so they are really thinking about and I'd say pre pandemic. It was sort of just I want to reach a lot of people there was a little bit of an emphasis towards global in a world with a pandemic where travel has been curtailed.
And time zones have been really hurting people. The idea that you can reach a global populism population builds your brand also if you look at demographics, I mean, theres a theres much more favorable demographics in Latam Africa, and especially in India, where you've got a lot of young people, who are going to be growing the roles of.
Enrolled students in colleges the U S demographic don't look so attractive so we definitely see reach to a global audience as the number one value proposition and within that increasingly post COVID-19, reaching international students primarily in developing economies, where theres a lot of younger people, who are going to be getting.
College degrees seems to be a big part of the value proposition that theyre resonate.
Sandy can we have the next question yes.
Yes, Sir and for the next one we have Brian Peterson from Raymond James Brian Your line is open.
Thanks, gentlemen, and congrats on a really strong results. So just one question for me and it's actually a follow up to Jason's question, but Jeff.
As you think about the degrees business.
And how maybe some of your partners would be looking to utilize that solution post pandemic.
When do you think we'll start to see an inflection point I know the growth is really impressive but I am curious if those decisions are being made now or this year, obviously I'm kind of curious to get a higher level comment on when people would really be looking to deploy that thanks guys.
Sure. Thanks, Brian Yeah, I think it kind of.
Is it kind of a wide variety of responses.
If you look at the degrees that we have announced in the last six months with our University partners. They have been disproportionately international.
We have been seeing a quicker uptake from international universities, who wanted to move degrees online. Another thing that we've been seeing is that debris partners, who have already done one degree offered one degree on coursera are more likely to do multiple degrees <unk>. So I do think that if theres going to be an inflection I think.
Part of it is the globalization of online degrees, where if you look at just our chronology of University partners, putting degrees on Coursera was generally English speaking U S based North America Europe. If you look in the last six to 12 months. It has diversified quite a bit in Latin America, Russia and India.
I think that Thats going to continue I think thats going to continue I think one of the reasons is to Jason's question that you linked into Bryan I, just think demographics and the appetite and the need for this is important the other thing too is that the OPM market is much more mature in the U S than it is in international markets and because back in the day, Andrew and Daphne wisely Sai.
And up 100, plus universities internationally right out of the gate, we've had relationships with international universities for for many many years almost a decade in many cases.
So we think I think that if there is going to be an inflection point and things. If you said I have a crystal ball and I am telling you Jeff for some genius, telling me you're going to have a lot of degrees quickly how did that happen I would say things went global quickly.
And partners, who already been one degree started putting on additional degrees more quickly because they can mix and match and reuse.
That's what I would say and I'm not saying that right now we're at that inflection point, but I am saying that our experience suggests that if there were an inflection point that might be a kind of a reason why that would happen.
Got it understood. Thanks, Kevin.
Sure.
He said he is done we will take one more.
Yes, Sir we have time for one last question is from Brett No blank.
Darrin Berg Capstone Bret your line is open.
Hi, guys. Thanks for taking my question I have one on.
Outcomes I was just curious maybe.
Maybe what you guys do different in the degree segment to keep engagement high and if you could offer any quantitative or qualitative data about student engagement and outcomes regarding the degree segment.
Sure Hey, Brett this is Jeff so.
One of the things that is useful about degree credentials as compared to say specializations are open courses or lots of other types of content. That's on Coursera and also just out there in the world is that degree credentials are pretty well known I mean people have a pretty good idea, but a college degree is and different degrees from different schools have certain outcome rates associated job.
Placement and things like that because the degrees that our University partners offer on Coursera are generally identical to the on campus program employers don't know whether you got a non coursera, whether you've got an on campus.
Our best guess, because we hear from University partners. The outcomes are generally the same but the recognition of the degree credential if you've got an coursera versus on campus is the same and I think that the outcomes. You would expect we would expect and we've not heard anything different that they are generally be the same as well obviously the more elite universities teaching.
Who are more selective and teaching and domains that are in high demand business technology and data science and health care, which are the four categories that we really focus on for degrees will have better student outcomes generally.
When we think about.
How students engage and retention rates, we do see term to term retention rates about the same as on campus programs.
Demographics, though are slightly different so on the.
Degree programs delivered on Coursera typically the average age is about 10 years older than on campus and I would say, 75% to 90% of the students depending on the degree program are working already so.
So the employability piece is a little bit already baked in because most of the people taking degrees are already working so they have a job. The question really is will this help them advancing their job I think there's a lot of evidence that suggests having a master's degree as opposed to just a bachelors or having a bachelors as opposed to no college degree really helps.
With career advancement, So we've heard only positive things from students and our University partners.
That's kind of how we're seeing it so far.
Understood. Thank you and then maybe just one quick follow up.
As I think about the consumer segment progressing throughout the year.
Can you talk about that actually improving on a revenue base.
As we progressed throughout the year or is that difficult comps that we should watch out for.
Yes, well so when you say progressing in absolute dollars or do you mean year on year percentage I think on a year on year percentage side I would say no because I don't think we will we're not expecting to do 59%.
Year on year revenue growth in the consumer segment in 2021, which is what we did in 2020 and absolute dollars can have generally speaking how are you expecting us to play out over the next three quarters, yes.
I think we don't guide to the individual segments. Firstly of course, we provide overall guidance for people understanding there's a mix within that to state the obvious.
And what we've talked about is we have no reason not to expect it to continue in the low single digits as it did before COVID-19, which is the commentary we've made.
On the roadshow and on an ongoing basis.
Perfect understood. Thanks, so much.
Sure. Thanks, Brett.
Thanks, everyone net routes the Q&A a replay of this webcast will be available on our Investor Relations website, along with the transcript in the next 24 hours. Thanks for joining us today.
This concludes today's conference call you may now disconnect.
Okay.
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Yes.
Yes.
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