Coursera IPO ‘Seized On the Right Moment’

As the dust settles from online learning provider Coursera's initial public offering at the end of March, it's become clear the company solidified its seat at the table as one of the most highly valued ed-tech companies in the world.

The company, which was co-founded by Stanford University professors Andrew Ng and Daphne Koller nearly a decade ago, announced its intention to go public earlier this year.

Investors who bought stock through the company’s initial public offering paid $33 -- the high end of the company’s initial $30 to $33 target range. On its first day of trading on the New York Stock Exchange March 31, shares closed at $45.

Through Thursday of this week, Coursera shares peaked at $62 apiece, pushing the company's market capitalization over $7 billion.

That $7 billion valuation is more than many experts in the ed-tech space anticipated based on the valuation of other publicly traded companies that support online degrees and workforce training such as 2U, Grand Canyon Education, Pluralsight, Adtalem, the Learning Technologies Group and Zovio. Coursera's market cap is far ahead of that of 2U, which is valued at about $3 billion, but trails just behind education publishing giant Pearson, valued at $8.3 billion.

In the online program management market, Coursera is now the valuation leader, but it is difficult to figure out whether it was Coursera’s capacity to manage online degrees that attracted investors, said Trace Urdan, managing director at investment bank and higher education consulting firm Tyton Partners.

Coursera has three different business streams. It has an online program management segment that works with universities to provide fully online bachelor’s and master’s degrees, and an enterprise segment that covers training for business and government employees. But the largest chunk of Coursera’s revenue is generated directly from consumers -- students who make payments directly to Coursera for various certificates and credentials.

In the next few weeks, it will become clearer which aspects of the business investors are most interested in as analysts initiate coverage and share their projections for the company's growth. Until then, Urdan has some thoughts on what might be driving interest.

“If I had to guess, I would say it’s a function of enthusiasm for consumer-driven education models,” Urdan said.

Recognizable brands and direct payments from consumers are two qualities that Coursera and another ed-tech company, Chegg, have in common, Urdan said. Chegg, which offers tutoring services, textbook rentals and controversial homework help to student subscribers, is currently the most highly valued ed-tech company, with a market capitalization of over $12 billion.

The enterprise arm of Coursera, which partners with businesses and governments to deliver workforce training, could also be an attractive prospect to investors, Urdan said.

“I think people really believe that these new alternative education models are the future of how people will be trained up for the labor market,” Urdan said. “That said, markets are volatile. We could talk again in a week and everything could be totally different.”

In addition to a well-known brand, investors may be drawn to the fact that Coursera has diversified its income so that it is not totally dependent on federal financial aid, said Daniel Pianko, managing director of University Ventures, an investment firm focused on global higher education.

In the past, investors have been burned by for-profit universities that ran afoul of government regulations relating to Title IV federal financial aid funding, Pianko said. Online program management companies such as 2U have also faced increasing political scrutiny -- something that investors are keen to avoid under the Biden administration, he said.

Although online program management is currently the smallest revenue driver of Coursera's three business streams, that will likely change over time, said Phil Hill, a partner at MindWires Consulting and publisher of the blog Phil on Ed Tech. Coursera’s online program management business is growing rapidly, and as it grows, political scrutiny may increase.

For both public and private companies in online learning, Coursera’s strong performance is a promising signal, Urdan said. In a recent blog post, he wrote of the positive potential impact Coursera’s valuation would have on other companies in the space.

Coursera didn’t need to go public to raise cash, Jeff Maggioncalda, CEO of Coursera, said in an interview.

Urdan, Pianko and Hill agreed that the company went public at an opportune time -- capitalizing on the heightened interest in online learning that was triggered by the pandemic and widespread pivots from face-to-face to remote learning.

When COVID-19 hit, Coursera was very smart in realizing the growth opportunity on its hands, said Paxton Riter, CEO of iDesign, a private company that helps institutions launch and manage online degrees.

“This was a perfect time to go out and do an IPO to raise a significant amount of capital for the company and garner a really healthy valuation,” said Riter. “They just seized on the right moment.”