Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Udemy Inc (UDMY, Financial) reported revenue at the high end of guidance and significantly exceeded the adjusted EBITDA margin range.
- Business revenue increased by 19%, with ARR growing to nearly $500 million, up 17% year-over-year.
- The company surpassed 1 billion course enrollments, highlighting its impact on global learning.
- Udemy Inc (UDMY) is focusing on large enterprise customers, which represent the highest growth opportunity.
- Operational efficiency initiatives are expected to generate meaningful cost savings and improve profitability.
Negative Points
- Consumer revenue declined by 4% year-over-year, impacted by a negative 3 percentage point from FX.
- The company lowered its full-year revenue growth expectations due to challenging macroeconomic conditions and softer-than-expected marketplace conversions.
- Net dollar retention rate (NDRR) showed some pressure, with upsells taking longer than historical norms.
- The strategic shift towards large enterprise customers may create near-term headwinds to revenue growth.
- The company anticipates some redundant expenses in the back half of the year due to immediate implementation of cost-saving actions.
Q & A Highlights
Q: On the consumer weakness, are we seeing continued consumer weakness, and any idea when you think this might pick up?
A: (Sarah Blanchard, CFO) We saw softness across Q2, broadly due to consumer spending. We have been pulling back on marketing spend over the past few years. We did implement some new low-cost marketing initiatives in the quarter, which increased traffic by 20% year-over-year. However, conversion rates were softer across the board.
Q: How will the shift to focusing on large enterprise customers affect existing SMB customers in terms of service continuity or changes in contracts?
A: (Gregory Brown, CEO) We are not divesting from SMB customers; they will still be an important component of our strategy. The investment and growth focus will be on large enterprises, but SMB customers will continue to be well taken care of.
Q: Can you provide an update on how the instructor payout changes have gone with instructors, particularly those at the higher end?
A: (Gregory Brown, CEO) We have had no top instructors opt out, and we expect that to continue. We are in constant communication with our instructors, and the sentiment remains very positive.
Q: What specifically can you do to increase penetration within the existing large customer base?
A: (Gregory Brown, CEO) We will focus on selling additional products like Udemy Business Pro and Udemy Leadership Academy, as well as new AI products. We are less than 10% penetrated in our current large enterprise customer base, so there is significant opportunity for both seat and product expansion.
Q: Can you help us understand the assumptions around the operating environment or growth environment as you work towards the adjusted EBITDA targets for 2026?
A: (Sarah Blanchard, CFO) We believe Udemy Business will continue to be a durable double-digit growth segment. The consumer side is less predictable, but we aim to stabilize it. The margin expansion will come from gross margin improvements, operational efficiency initiatives, and operating leverage.
Q: How should we think about the growth on a quarterly breakdown for Udemy Business in the back half of the year?
A: (Sarah Blanchard, CFO) We expect to exit the year with Udemy Business in the low double digits. The reacceleration will take some time due to the strategic shift and changes in our go-to-market organization.
Q: Can you provide an update on international operations in the APAC region, particularly Japan?
A: (Gregory Brown, CEO) We have shored up leadership in the region and continue to work through execution in Korea, Vietnam, and Japan. Our new CRO has spent time in Japan and returned with optimism about the upside potential.
Q: What can you do differently under the new strategic plan to drive upsell at existing clients?
A: (Gregory Brown, CEO) We will apply more focus and rigor under our new CRO's leadership. We will get better at selling additional products and capabilities, and we will focus on both seat and product expansion within our large enterprise customers.
Q: Will you need to hire additional sales leadership to execute the new go-to-market playbook?
A: (Gregory Brown, CEO) We do not expect material changes in sales leadership. We will focus on reshaping processes and augmenting our approach to land and expand more efficiently in the enterprise segment.
Q: Can you elaborate on the conversion slowdown in the consumer segment and what happened there?
A: (Sarah Blanchard, CFO) We saw strong Q1 conversion rates but experienced a slowdown in May and June. We expect the consumer environment to remain tough for the rest of the year. We have a new head of consumer and are launching new strategic initiatives, but we are cautious about increasing marketing spend until we see better long-term returns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
