Legal Barriers And AI Uncertainty Will Undermine Online Learning

Key Takeaways

• Declining willingness to pay and rising competition from free educational resources threaten Coursera's pricing power, revenue, and long-term profitability.
  
• AI-driven content obsolescence and increased regulatory hurdles are expected to raise costs, constrain international expansion, and pressure margins.
  
• Growing demand for tech upskilling, AI-driven learning innovations, and strong industry partnerships are fueling Coursera's user growth, platform differentiation, and long-term profitability.

Catalysts

Provides online educational services in the United States, Europe, Africa, the Asia Pacific, the Middle East, and internationally.

• Falling consumer willingness to pay for online certificates and degrees-amid intensifying skepticism about the return on investment of digital education-could sharply curtail paid enrollments and subscription growth, leading to stagnating or declining platform revenue over the long term.
  
• Accelerating regulatory scrutiny and mounting legal uncertainties across global markets threaten to increase compliance costs and create barriers to entry for expansion into key international regions, eroding Coursera's ability to scale its international user base and constraining future revenue growth.
  
• The rapid evolution of AI and automation may render large portions of Coursera's existing course catalog obsolete at a much faster pace, undermining platform relevance and student engagement, while raising content refresh costs and ultimately compressing both gross and net margins.
  
• Intensifying competition from both free and paid content providers-including YouTube, LinkedIn Learning, smaller niche players, and open educational resources-risks diminishing Coursera's pricing power and brand differentiation, resulting in protracted margin pressure and lower long-term earnings potential.
  
• The widespread adoption of open access and free educational resources is expected to induce price deflation across the online learning sector, directly undercutting Coursera's paid business model and threatening to erode overall revenues and profitability as consumer willingness to pay declines.

Coursera Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Coursera compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Coursera's revenue will grow by 4.6% annually over the next 3 years.
• The bearish analysts are not forecasting that Coursera will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Coursera's profit margin will increase from -7.1% to the average US Consumer Services industry of 11.6% in 3 years.
• If Coursera's profit margin were to converge on the industry average, you could expect earnings to reach $95.9 million (and earnings per share of $0.52) by about August 2028, up from $-50.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 21.5x on those 2028 earnings, up from -39.0x today. This future PE is greater than the current PE for the US Consumer Services industry at 18.7x.
• Analysts expect the number of shares outstanding to grow by 4.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.09%, as per the Simply Wall St company report.

Coursera Future Earnings Per Share Growth

Risks

• The accelerating global demand for upskilling, particularly around new technologies like generative AI, is expanding Coursera's total addressable market and user base, helping drive durable revenue growth and higher platform engagement over the long term.
  
• Renewed operating focus and investments in personalized learning technology, especially with Coursera Coach and AI translation features, are improving learner outcomes, user engagement, and retention, which supports sustained improvement in both top-line revenue and net margin.
  
• Expansion and deepening of partnerships with major tech companies (for example, AWS, IBM, Microsoft, Google Cloud) and prestigious universities (such as University of Cambridge) are enhancing Coursera's content quality, brand strength, and platform differentiation, enabling premium pricing and higher gross margins.
  
• Strong subscription growth from Coursera Plus and ongoing innovations in micro-credentials and industry certificates create more recurring and predictable revenue streams, boosting visibility into future earnings and supporting long-term profitability.
  
• A robust balance sheet with $775 million in unrestricted cash and no debt, alongside consistent free cash flow generation and expanding EBITDA margins, allows for continued strategic investments and the agility to capitalize on secular online education growth trends, further supporting long-term earnings and financial stability.

Valuation

• The assumed bearish price target for Coursera is $9.08, which represents two standard deviations below the consensus price target of $12.23. This valuation is based on what can be assumed as the expectations of Coursera's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $826.7 million, earnings will come to $95.9 million, and it would be trading on a PE ratio of 21.5x, assuming you use a discount rate of 7.1%.
• Given the current share price of $12.13, the bearish analyst price target of $9.08 is 33.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.