Coursera IPO Stock Is Richly Valued, Investors Should Wait to Buy

Coursera is an education technology company that was founded in 2012 by Stanford University computer science professors Andrew Ng and Daphne Koller. 

Currently, Coursera has over 77 million customers to whom it offers more than 5,100 courses and specializations, over 40 certificates, and over 25 degree programs.   

Coursera's IPO date hasn't been set yet. However, the company is expected to price the IPO in the week of March 29. It will list on the NYSE under the ticker symbol “COUR.” Morgan Stanley, Goldman Sachs, Citi, and UBS Investment Bank are the joint book runners on the deal. 

Coursera is expecting to offer 15.7 million shares, which includes nearly 7 percent from insiders. The price range is expected to be between $30 and $33. At the mid-point of this price range, the company will command a valuation of nearly $5.1 billion. The valuation is more than twice its last private valuation of around $2.5 billion, which was done in October 2020. 

Renaissance Capital also reported that new investors Baillie Gifford and Capital Research intend to purchase up to $125 million worth of shares in the offering. The backing from deep-pocketed investors usually provides credibility for an IPO.

Currently, Coursera isn't profitable. For 2020, the company booked revenues of $293.5 million—59 percent growth YoY. However, the company still experienced losses of $66.8 million for 2020 compared to $46.7 million for 2019. In its prospectus, the company said, “We expect to incur significant losses in the future.” The prospectus also said, “We anticipate that our operating expenses will increase substantially for the foreseeable future.” The higher operating expenses are due to the company's expanding course offerings, expanding sales and marketing efforts, scale improvements, and increased competition.

Coursera’s stock forecast depends on the macroeconomic conditions in the industry and the company’s execution efforts. The industry outlook is strong and the online learning market is expanding. The coronavirus pandemic has accelerated the growth in the industry. 

According to GSV Ventures, the COVID-19 pandemic drove the digital learning market exponentially. In 2020, the sector grew to $160 billion. It also said, “The catalyst of having 20% of the world’s population becoming online learners overnight has ushered in a new era.” The market is expected to grow to $1 trillion by 2027, which is nearly twice as fast as the expectations before the COVID-19 pandemic.

Coming back to the company, Coursera looks set to take advantage of these trends. It has 77 million students (and expanding), which is more than most of its competitors. The company’s fast-growth trajectory is also reflected in the 59 percent revenue growth it experienced during 2020. While the COVID-19 pandemic has accelerated the growth trend, it isn't expected to scale back after the pandemic ends. 

Coursera IPO stock could be a good bet on the expanding digital learning market. However, you should note that given the expanding platform, courses, and marketing efforts, the company might not turn profitable or cash flow positive anytime soon. 

The competition in this space is only rising with the likes of Udemy, Khan Academy, and Skillshare offering competing courses at lower prices or even free of cost. The rising competition could make achieving profitability for Coursera even more difficult. While its valuation might have doubled from the last private valuation, its profitability prospects haven't. Its valuation also suggests a rich 17.3x sales multiple (2020 revenues). While the growth prospects are good, you might want to wait for a clearer profitability roadmap to bet on this stock.

After the IPO is official, retail investors will be able to buy Coursera stock through a traditional or online brokerage. It will list as "COUR" on the NYSE.