AI-Driven Workforce Reskilling And Subscriptions Will Power Significant Long-Term Upside

Catalysts

About Udemy

Udemy operates a global online learning platform that serves enterprises and individual learners with skills based, career oriented education.

What are the underlying business or industry changes driving this perspective?

• Rapid workforce reskilling needs driven by AI adoption across industries position Udemy Business as a mission critical partner, supporting sustained ARR growth and larger enterprise deal sizes that lift total revenue and earnings power.
• The ongoing mix shift from transactional courses to high LTV subscription products in both Consumer and Enterprise creates a more predictable, recurring revenue base with structurally higher net margins and cash generation.
• Expanded use of AI powered capabilities such as adaptive learning paths, Role Plays, labs and assessments increases platform stickiness and usage intensity, supporting higher net dollar retention and margin expansion as content scales with limited incremental cost.
• Deep integrations into enterprise workflows and HR tech stacks, along with outcome based skill validation and certification, make Udemy harder to displace and should drive growing upsell and cross sell, boosting ARR growth and operating leverage.
• Strategic partnerships with technology, certification and talent platforms, combined with instructor led coaching and cohort offerings, broaden distribution and monetization channels, supporting premium pricing, higher average revenue per learner and stronger long term earnings growth.

Assumptions

This narrative explores a more optimistic perspective on Udemy compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Udemy's revenue will grow by 5.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -0.5% today to 14.3% in 3 years time.
• The bullish analysts expect earnings to reach $132.9 million (and earnings per share of $0.9) by about December 2028, up from $-3.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $-74.4 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, up from -206.1x today. This future PE is lower than the current PE for the US Consumer Services industry at 16.8x.
• The bullish analysts expect the number of shares outstanding to decline by 0.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Udemy is deliberately trading near term Consumer revenue for higher quality subscription revenue, and management expects Consumer revenue to decline about 9% this year. If subscription growth fails to fully offset shrinking transactional sales on the expected timeline, overall revenue growth could stall or reverse, pressuring earnings and limiting operating leverage over the next several years.
• Learning and development budgets are under pressure as enterprise L&D teams are being asked to do more with less. While Udemy hopes to benefit from vendor consolidation, a prolonged budget constrained environment or slower than expected AI transformation spending could cap Udemy Business net new ARR growth and keep net dollar retention rates in the low 90s, weighing on long term revenue expansion and earnings power.
• The strategy to invest heavily in AI capabilities, personalization and partnerships means 2026 adjusted EBITDA will be only modestly above 2025 levels instead of expanding rapidly. If these investments do not translate into durable competitive advantage or faster growth, net margins and earnings could lag bullish expectations for an extended period.
• Udemy is pushing more value into subscriptions while lowering instructor revenue share in Udemy Business and Consumer subscriptions, with a further step down to 15 percent planned. If these economics drive instructor dissatisfaction or churn that degrades course quality and innovation, it could hurt platform differentiation, reduce learner engagement and ultimately slow revenue and margin growth.
• The consumer pivot relies on new monetization levers such as advertising on freemium content, sponsorships and outcome based certification or career journeys. If ad programs underperform, partners do not scale as hoped or learners fail to adopt higher priced journeys at meaningful levels, Consumer segment revenue, average revenue per learner and overall earnings growth could fall short of optimistic scenarios.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Udemy is $12.0, which represents up to two standard deviations above the consensus price target of $9.67. This valuation is based on what can be assumed as the expectations of Udemy's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $12.0, and the most bearish reporting a price target of just $8.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2028, revenues will be $929.2 million, earnings will come to $132.9 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of $5.25, the analyst price target of $12.0 is 56.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.