Revenue Performance - Revenue for the three months ended September 30, 2025, was $195.7 million, a slight increase of $0.3 million compared to $195.4 million in the same period last year, representing a flat year-over-year growth [191]. - For the nine months ended September 30, 2025, total revenue was $595.9 million, an increase of $9.2 million or 2% compared to $586.6 million in the prior year [196]. - Enterprise segment revenue for the three months ended September 30, 2025, was $132.8 million, accounting for 68% of total revenue, up 5% from $126.1 million in the prior year [192]. - Consumer segment revenue for the three months ended September 30, 2025, was $62.9 million, a decrease of 9% from $69.3 million in the same period last year [194]. - The Enterprise segment revenue for the nine months ended September 30, 2025, was $389.8 million, representing a 7% increase from $364.3 million in the same period last year [197]. - The Consumer segment revenue for the nine months ended September 30, 2025, was $206.0 million, a decrease of 7% from $222.3 million in the prior year [198]. Cost and Expenses - Cost of revenue for Q3 2025 was $66.8 million, an 8% decrease from $72.4 million in Q3 2024, driven by a $6.2 million decrease in content costs [200]. - Total operating expenses for Q3 2025 were $129.0 million, a 15% decrease from $152.5 million in Q3 2024 [209]. - Research and development expenses for the three months ended September 30, 2025, were $25.6 million, down from $33.0 million in the same period last year [186]. - General and administrative expenses for the three months ended September 30, 2025, were $21.9 million, slightly down from $22.3 million in the prior year [186]. - Sales and marketing expenses for Q3 2025 were $81.5 million, a 5% decrease from $86.0 million in Q3 2024 [211]. - The company expects general and administrative expenses as a percentage of revenue to decrease over the long term due to greater operational scale and efficiency [179]. Profitability - The company reported a net income of $1.6 million for the three months ended September 30, 2025, compared to a net loss of $25.3 million in the same period last year [186]. - Adjusted EBITDA for Q3 2025 was $24.3 million, compared to $11.6 million in Q3 2024, reflecting a margin of 12% [249]. - Net income for Q3 2025 was $1.6 million, a significant improvement from a loss of $25.3 million in Q3 2024 [249]. - The company recognized a significant increase in net income driven by a shift towards Enterprise segment revenue and reduced operational costs [250]. Subscriber and Customer Metrics - Udemy's consumer marketplace has attracted over 80 million learners across 180 countries, with over 250,000 courses available [149]. - The number of paid Consumer subscribers increased to 294,156 in Q3 2025, representing an 88% growth compared to the previous year [236]. - Monthly average buyers decreased by 9% year-over-year to 1,200 in Q3 2025, and by 5% to 1,284 for the nine months ended September 30, 2025 [238]. - Udemy Business (UB) customers increased to 17,111 as of September 30, 2025, representing a 2% growth from 16,848 in 2024 [227]. - Udemy Business Annual Recurring Revenue (ARR) reached $527.2 million for the nine months ended September 30, 2025, a 4% increase from $504.6 million in the prior year [229]. - Udemy Business net dollar retention rate decreased to 93% in Q3 2025 from 99% in Q3 2024, while the large customer net dollar retention rate fell to 97% from 104% [233]. Strategic Initiatives - The company plans to repurchase up to $50 million in shares as part of its share repurchase program approved in September 2025 [153]. - Udemy's dual-revenue model includes subscription-based plans and single-course purchases, allowing for both recurring revenue and individual transaction value [150]. - The company is focusing on expanding its international footprint, particularly in regions with large underserved adult and corporate learning populations [164]. - AI investments are enhancing Udemy's platform capabilities, enabling personalized and measurable skill development experiences [151]. - The company plans to continue investing in the growth and development of its platform, with potential future capital raises if available funds are insufficient [260]. Cash Flow and Financial Position - For the three months ended September 30, 2025, free cash flow was $12.1 million, a significant increase from a negative $10.2 million in the same period of the prior year [254]. - For the nine months ended September 30, 2025, net cash provided by operating activities was $72.1 million, up from $43.5 million in the same period of 2024, reflecting an increase of $28.7 million [266][268]. - As of September 30, 2025, the company had cash, cash equivalents, and restricted cash totaling $237.0 million, along with marketable securities of $135.3 million [256]. - The company entered into a revolving credit facility in May 2025, providing $200.0 million in available capacity, which was undrawn as of September 30, 2025 [257]. - For the nine months ended September 30, 2025, net cash used in financing activities was $42.9 million, primarily due to $29.2 million in common stock repurchases [272]. - The accumulated deficit as of September 30, 2025, was $798.9 million, indicating significant historical operating losses [262]. - Cash provided by investing activities for the nine months ended September 30, 2025, was $15.8 million, driven by $169.1 million from the maturity of marketable securities [270]. Instructor Revenue Share Changes - The company is reducing the instructor revenue share for subscription offerings to 15% by 2026, with adjustments to 20% and 17.5% effective in 2024 and 2025 respectively [172]. - The reduction in instructor revenue share from 20% to 17.5% contributed to improved margins in both Enterprise and Consumer segments [241][242].

Financial Data and Key Metrics Changes - Consolidated subscription revenue grew 8% year over year, now accounting for 74% of total revenue, an increase of 600 basis points from the previous year [4][17] - Total revenue for Q3 reached $196 million, exceeding guidance, with adjusted EBITDA margin improving to 12% from 6% year over year [16][21] - GAAP net income was approximately $2 million, a significant improvement from a loss of $25 million in Q3 2024 [21][22] Business Line Data and Key Metrics Changes - Udemy Business segment revenue increased 5% year over year, generating $7 million in net new ARR, totaling $527 million in ARR [4][17] - Consumer segment revenue reached $63 million, with subscription revenue up 43% year over year, now accounting for 19% of the segment's revenue [19][20] Market Data and Key Metrics Changes - Strong performance noted in technology, manufacturing, and financial services sectors, with a total net dollar retention rate of 93% and 97% for large customers [18][22] - The consumer segment's strategic pivot to subscription products is supported by compelling unit economics, with subscription products delivering an LTV to CAC ratio well above three times [20] Company Strategy and Development Direction - The company is focused on accelerating subscription revenue growth and transforming its business model to a subscription-first approach [4][25] - Udemy aims to be a lifelong learning solution, integrating AI to enhance learning experiences and career advancement [10][15] - The strategy includes partnerships with organizations like Pearson and Indeed to enhance certification journeys and improve conversion rates [14][31] Management's Comments on Operating Environment and Future Outlook - Management highlighted the pressure on L&D budgets due to AI transformation, emphasizing the need for effective ROI demonstration [39][40] - The company expects consolidated subscription revenue growth in 2026 to approach double digits, with a focus on building a predictable, higher-value business [24][25] Other Important Information - The company has a strong balance sheet with $372 million in cash and marketable securities, and free cash flow generation of $12 million [22] - The company is investing in product differentiation and partnerships to enhance its offerings in the AI and LLM space [55][56] Q&A Session Summary Question: Can you elaborate on the initiatives for accelerating the transition to consumer subscription? - Management discussed various digital marketing strategies to improve customer acquisition and retention, including optimizing the shopping cart and reactivating existing customers [29][30] Question: How is the net new pipeline progression for Udemy Business heading into Q4? - Management expressed confidence in the pipeline, noting improvements in expansion deals and stable gross dollar retention despite challenges from COVID-era contracts [33][34] Question: What is the current state of L&D budgets and how does it impact Udemy? - Management noted that L&D teams are under pressure to do more with less, but Udemy's comprehensive solutions are positioned to capture increased demand [39][40] Question: What are the expectations for profitability and net new ARR growth? - Management indicated confidence in achieving high single-digit net new ARR growth in Q4, supported by a robust pipeline and improved deal sizes [44][45] Question: How is Udemy addressing instructor churn due to lower revenue share? - Management emphasized commitment to the instructor community and efforts to create new revenue streams for instructors through coaching and enhanced tools [69][70] Question: Any thoughts on acquiring traffic through AI platforms? - Management acknowledged the importance of being part of the evolving AI landscape but emphasized a focus on building a distinctive consumer experience rather than rushing into partnerships [71][72]

Financial Performance - Q3 2025 revenue reached $195.7 million, exceeding expectations[13, 15] - Adjusted EBITDA for Q3 2025 was $24.3 million, representing a 12% margin[13, 15] - Free cash flow for Q3 2025 was positive $12.1 million, with year-to-date free cash flow at positive $58.2 million, or 10% of revenue[13] - Consolidated subscription revenue increased by 8% year-over-year in Q3 2025, accounting for 74% of total revenue[13, 17] - The company is projecting full year 2025 revenue between $787 million and $790 million and adjusted EBITDA between $92 million and $94 million[9, 26] Business Growth and Strategy - Udemy Business (UB) Annual Recurring Revenue (ARR) increased by 4% year-over-year[9, 15] - The platform has over 294,000 paid consumer subscribers, surpassing the 2025 target of 250,000[9, 13, 18] - Enterprise segment gross margin is at 75%[9] AI Initiatives - The platform offers over 5,000 AI-focused courses with over 14 million enrollments and 560 million+ minutes of AI training consumed[9, 18] - Nearly 13,000 Role Play simulations have been created, with over 400 enterprise customers launching custom Role Plays[9, 18]

Group 1 - The stock market is hovering around all-time highs, prompting the need for investors to consider portfolio re-allocation to mitigate potential downside risks [1] - Concentrated trading in large-cap tech stocks has resulted in expensive multiples, indicating a potential overvaluation in this sector [1] - Gary Alexander, with extensive experience in technology and startups, provides insights into current industry themes and has been a contributor to Seeking Alpha since 2017 [1]

Core Insights - The online learning industry is evolving due to AI-driven personalization and changing workforce demands, with Udemy transitioning from a user-generated course marketplace to a subscription-based AI-enhanced model [1][2] - Udemy's enterprise segment revenue increased by 7% year-over-year, and the company achieved over 200,000 paid consumer subscribers [1][2] Company Overview - Udemy has been a significant player in the online learning space for 15 years, generating approximately $800 million in revenue, with $500 million from B2B and $300 million from B2C [1][2] - The company is pivoting its business model to focus on AI-driven personalized learning experiences for both consumers and enterprises [1][2] Business Model Transition - The shift from selling individual courses at large discounts to a subscription model is aimed at improving lifetime value and customer acquisition cost (CAC) ratios, resulting in a 40% year-over-year growth in subscribers [2][15] - Udemy plans to monetize certifications and introduce advertising, enhancing revenue per user significantly [2][15] Market Positioning - The company maintains a competitive advantage through its dynamic marketplace model, where 35% of the most used content is updated monthly, allowing for rapid adaptation to market changes [2][15] - Udemy is focusing on partnerships, such as with Indeed, to integrate its offerings into job-seeking processes, positioning itself similarly to a digital media company [2][15] Enterprise Strategy - The enterprise strategy involves targeting business leaders, including CTOs and heads of sales, to address ROI and workforce management challenges, particularly in the context of AI [8][10] - Udemy aims to reskill a significant portion of the workforce, with an estimated 92 million people needing reskilling in OECD countries over the next five years due to AI advancements [10][12] Financial Performance - The company reported a gross margin improvement of 300 to 400 basis points and generated $39 million in free cash flow in the second quarter [15][16] - With nearly $400 million in cash on the balance sheet, Udemy is positioned to invest in technology and product development to support its transformation [16][18]

Core Insights - Enterprises are increasingly seeking learning management systems (LMS) that ensure compliance while providing modern learning experiences [1][21] - There is a demand for unified platforms that can deliver engaging learning experiences to various audiences while maintaining compliance features [2][3] Learning Management Systems and Learning Experience Platforms - The research indicates a convergence between LMS and learning experience platforms (LXP), with organizations preferring a single system that enforces learning policies and prepares for audits [2][3] - Companies are looking for platforms that integrate with human capital management and other systems to streamline operations [2][4] User Expectations and System Features - Evolving user expectations are reshaping LMS platforms, with employees desiring personalized, consumer-grade interfaces and options tailored to their skill levels [3] - Employers are seeking comprehensive views of learning across organizations to identify skill coverage and risk hotspots, aiming to activate skills and reduce risks [3] Extended-Enterprise Capabilities - Companies are increasingly interested in a single learning platform that serves both internal employees and external audiences, which can reduce operational overhead and ensure data coherence [4] Future Trends in Learning Platforms - By 2027, it is predicted that one-third of enterprises will utilize LMS and LXP platforms with ontologies that define relationships among skills and roles, optimizing learning paths and improving employee engagement [5] - Enterprises are moving towards comprehensive learning and development suites that integrate core LMS functions, experience features, and AI capabilities for personalized recommendations [6] Evaluation of Software Providers - The ISG Buyers Guides for Learning and Development evaluated 31 software providers across three categories: Learning Management Systems, Learning and Development Suites, and Learning Content Platforms [7][8] - Oracle, Cornerstone, and Schoox were recognized as Overall Leaders in their respective categories, with Oracle leading in multiple evaluation categories [9][10][11] Importance of Learning in Organizations - Learning is increasingly viewed as an integral part of everyday work, necessitating continuous guidance for employee potential aligned with organizational needs [12]

Core Insights - Udemy, a leading AI-powered skills acceleration platform, announced the winners of the 2025 Learning Excellence Awards, recognizing organizations that have successfully achieved impactful results in learning and development through AI-driven upskilling [1] Group 1 - The awards were presented during Udemy's annual FWD event, highlighting the transformative efforts of visionary leaders in enhancing learning at scale [1] - The recognized organizations exemplify how they are equipping their teams to thrive in an AI-driven future [1]

Core Insights - The edtech market is experiencing growth driven by the demand for AI-based digital learning solutions and personalized learning across various educational segments [1][20] - Chegg, Inc. and Udemy, Inc. are two key players benefiting from these trends, with Chegg focusing on AI-driven tutoring and Udemy expanding its subscription model [1][6] Chegg Overview - Chegg operates a direct-to-consumer subscription model, providing digital study aids and AI-driven tutoring for college students [2] - The company is transforming its Chegg Study product into an AI-powered Personalized Learning Assistant, aimed at improving student graduation rates [3][21] - Chegg's investments in Busuu and Skills are enhancing its offerings in language learning and workplace readiness, with AI integration boosting engagement and retention [4][21] - The company has significantly reduced operating expenses by 72% year-over-year to $202.5 million in the first half of 2025, with expected adjusted savings of $165 million to $175 million for 2025 [5] Udemy Overview - Udemy operates as an online learning marketplace, with a market cap of approximately $1.05 billion, and is focusing on AI-powered innovations and subscription offerings [6] - About 70% of Udemy's revenue is now subscription-based, with plans to expand this model to reach over 250,000 consumer subscriptions by the end of 2025 [6][20] - The company is enhancing its partnership ecosystem, notably with Indeed and UKG, to integrate its content into broader career marketplaces and streamline enterprise learning management [7][8] - Despite growth in subscriptions, Udemy's Consumer segment faced a 6% year-over-year revenue decline to $143.1 million in the first half of 2025 due to macroeconomic challenges [10] Stock Performance and Valuation - Chegg's stock has outperformed Udemy's in the past six months, indicating stronger market momentum [11] - Chegg is currently trading at a discount compared to Udemy, which has a premium valuation despite facing headwinds [15][23] - EPS estimates for Chegg indicate a loss for 2025 but a break-even point for 2026, while Udemy's EPS estimates show significant growth potential [16][18] Investment Appeal - Chegg is positioned as a more compelling near-term buy due to its cost discipline, AI-led transformation, and relative valuation discount [23] - Udemy, while an attractive long-term player, faces macroeconomic risks and a reliance on discretionary spending, which may impact its near-term performance [22][23]

Core Viewpoint - Udemy, Inc. has been upgraded to a Zacks Rank 1 (Strong Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Performance - The Zacks rating system emphasizes the correlation between changes in earnings estimates and stock price movements, particularly influenced by institutional investors [4][6]. - For Udemy, the recent increase in earnings estimates suggests an improvement in the company's underlying business, likely leading to a rise in stock price [5][10]. Zacks Rank System - The Zacks Rank system classifies stocks into five groups based on earnings estimates, with Zacks Rank 1 stocks historically generating an average annual return of +25% since 1988 [7]. - The upgrade of Udemy to Zacks Rank 1 places it in the top 5% of Zacks-covered stocks, indicating strong potential for market-beating returns in the near term [9][10]. Earnings Estimate Revisions - Analysts have raised their earnings estimates for Udemy significantly, with the Zacks Consensus Estimate increasing by 97% over the past three months [8]. - The expected earnings per share for Udemy for the fiscal year ending December 2025 is projected to be $0.47, showing no year-over-year change [8].

Group 1 - Rush Street Interactive (RSI) has seen a 12.5% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [1] - Udemy (UDMY) has experienced a 9.3% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [1] - Envista (NVST) has reported an 8.7% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [2] Group 2 - Dorman Products (DORM) has seen a 7.7% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [3] - CF Bankshares (CFBK) has experienced a 6.4% increase in the Zacks Consensus Estimate for its current year earnings over the last 60 days [3]