Executive Summary / Key Takeaways

• Udemy is strategically transforming into an AI-powered reskilling platform, shifting focus towards the higher-margin large enterprise segment to drive long-term profitable growth.
• First Quarter 2025 results showed revenue growth driven by the Enterprise segment (up 9% YoY), partially offset by a decline in Consumer (down 8% YoY), with overall gross margin expanding significantly to 65%.
• Operational efficiency initiatives, including a restructuring, are yielding substantial cost savings, contributing to a notable improvement in adjusted EBITDA, which reached $21.1 million or 11% of revenue in Q1 2025.
• The company has introduced several AI-powered capabilities, such as Skills Mapping, AI Assistant, and Role Play, designed to enhance personalization, engagement, and deliver measurable business outcomes for enterprises.
• Management forecasts a transition year in 2025 with tempered top-line growth expectations (FY25 revenue guidance $772M-$794M, down 0.5% at midpoint) due to macroeconomic uncertainty and strategic shifts, but projects continued adjusted EBITDA expansion (FY25 guidance $77M-$87M, up significantly from prior outlook) with clear targets for substantial profitability in 2026 and 2027.

The Reskilling Imperative: Udemy's Strategic Pivot in a Dynamic Market

The global workforce is undergoing a profound transformation, driven by rapid technological advancements, particularly in Artificial Intelligence. This evolution is widening the skills gap, making continuous learning and reskilling not just beneficial, but essential for both individuals and organizations. Estimates suggest that by 2030, the skills shortage could leave 85 million jobs unfilled, resulting in trillions in lost revenue. In this dynamic environment, the market for online learning solutions is rapidly evolving, demanding platforms that can deliver relevant, up-to-date skills development at scale.

Udemy, Inc., established in 2010, has built a significant presence in this market with its online platform connecting learners with a vast network of expert instructors. The company operates through two primary segments: Enterprise (Udemy Business or UB) and Consumer. Historically, Udemy has focused on expanding its reach, successfully doubling its enterprise customer base within a three-year period. However, recognizing the changing market dynamics and the need to balance growth with profitability, Udemy has embarked on a strategic transition. This involves reallocating resources and sharpening its focus on the large enterprise customer segment, which offers higher growth potential, better unit economics, and higher returns on investment compared to the Small and Medium Business (SMB) segment. While the SMB market will still be supported, new opportunities will increasingly be addressed through more efficient channels.

Central to this strategic pivot is Udemy's transformation into an AI-powered reskilling platform. The company views AI not just as a topic for courses, but as a fundamental technology to enhance its platform and deliver greater value. AI is accelerating market shifts, creating demand for new skills, and enabling more personalized and effective learning experiences. Udemy is leveraging AI to augment value for both learners and content creators, positioning itself as a two-sided AI platform. This technological differentiation is intended to strengthen its competitive moat in a crowded market.

The competitive landscape for online learning is highly fragmented and rapidly evolving, with limited barriers to entry. Udemy competes for learners, enterprise customers, and instructors against a variety of players, including corporate training providers, direct-to-consumer platforms, specialized content providers, and free online resources. Publicly traded competitors like Coursera (COUR), Chegg (CHGG), and Duolingo (DUOL) each present distinct challenges. Coursera, with its university-backed content and strong enterprise focus, offers brand credibility in professional upskilling but may lag in content update speed compared to Udemy's marketplace. Chegg, focused on student support and tutoring, excels in integrated study ecosystems and AI tutoring, potentially offering higher user retention in specific niches. Duolingo, dominant in gamified language learning, demonstrates high user engagement and viral growth, posing a potential threat if it expands into broader skills.

Udemy's marketplace model, featuring over 180,000 courses from tens of thousands of instructors, provides a significant advantage in content breadth and freshness, enabling faster responses to emerging skill demands like AI. This model allows for rapid content creation and updates, potentially offering a speed-to-market advantage over publisher models. While Udemy's gross margins (63.4% TTM) are competitive, they may trail some rivals like Chegg (71% TTM) or Duolingo (73% TTM) in certain segments, partly due to instructor payout structures. However, Udemy's focus on operational efficiency and the shift towards higher-margin Enterprise subscriptions are aimed at closing this gap. The company's global distribution and multilingual support also differentiate it, particularly in international markets where over 60% of its revenue is generated. Despite competitive pressures and macroeconomic headwinds, Udemy believes its unique combination of marketplace scale, AI innovation, and targeted enterprise focus positions it to capture significant market share and drive long-term value.

Performance Reflecting Strategic Realignment

Udemy's recent financial performance reflects the initial impacts of its strategic realignment and ongoing operational efficiency efforts, set against a backdrop of macroeconomic uncertainty. In the first quarter of 2025, total revenue reached $200.3 million, a 2% increase compared to $196.8 million in the same period of 2024. This growth was primarily fueled by the Enterprise segment, which saw revenue climb 9% year-over-year to $127.7 million, representing 64% of total revenue. The increase in Enterprise revenue was driven by a rise in the number of Udemy Business customers, which grew 7% year-over-year to 17,216, including a 9% increase in large customers (>1,000 employees) to 5,700. However, this was partially offset by pressure on net retention rates, with the consolidated UB NDRR at 96% and Large Customer NDRR at 100% as of March 31, 2025, indicating that churn marginally outpaced expansion across the existing customer base.

The Consumer segment experienced an 8% year-over-year decline in revenue, falling to $72.6 million, or 36% of total revenue. This decrease was mainly attributed to lower revenue from single course purchases and negative foreign currency exchange rate impacts. Partially offsetting this decline was growth in consumer subscriptions, which now account for 13% of segment revenue. Monthly average buyers also saw a slight decrease, down 2% year-over-year to 1,412 thousand.

Despite the mixed top-line performance, profitability showed significant improvement. Total gross profit increased 7% year-over-year to $129.4 million, resulting in a gross margin of 65%, up from 61% in Q1 2024. This expansion was primarily driven by a reduction in instructor revenue share for subscription offerings (from 20% to 17.5% effective January 1, 2025) and the continued shift in revenue mix towards the higher-margin Enterprise segment. Segment adjusted gross margin for Enterprise was 75% (up 300bps YoY) and for Consumer was 56% (up 100bps YoY).

Operating expenses decreased 7% year-over-year to $133.9 million, largely due to disciplined cost management. Sales and marketing expenses decreased by $4.8 million, driven by lower direct marketing costs, personnel expenses, and stock-based compensation. Research and development expenses saw a $6.3 million decrease, primarily due to reduced personnel and stock-based compensation costs. General and administrative expenses increased slightly, mainly due to higher charges for credit losses reserves, and restructuring charges of $1.5 million were recognized in the quarter as part of the September 2024 plan.

The focus on operational efficiency resulted in a substantial improvement in the bottom line. Net loss narrowed significantly to $1.8 million in Q1 2025, compared to a net loss of $18.3 million in Q1 2024. Adjusted EBITDA saw a dramatic increase, reaching $21.1 million or 11% of revenue, a significant expansion from $6.5 million or 3% of revenue in the prior year period. This improvement was largely attributed to the reduction in instructor revenue share, decreased direct marketing costs, and lower personnel costs resulting from operational efficiency initiatives.

Liquidity remains solid, with cash, cash equivalents, and restricted cash totaling $190.7 million and marketable securities of $167.4 million as of March 31, 2025. The company generated $12.2 million in cash from operating activities in Q1 2025, although this was a decrease from $21.0 million in Q1 2024, primarily due to timing differences in receivables and payables, including restructuring costs. Management believes existing liquidity and expected cash flows are sufficient for at least the next 12 months. The company also recently secured a new $200 million revolving credit facility in June 2025, providing additional financial flexibility, and completed a $150 million share repurchase program in November 2024, demonstrating a commitment to returning capital to shareholders when appropriate.

Technological Edge and Innovation Pipeline

Udemy's core technological differentiation lies in its dynamic, two-sided marketplace platform, which is increasingly being powered by Artificial Intelligence. Unlike traditional publisher models, Udemy's platform enables tens of thousands of subject matter experts to rapidly create, distribute, and update content, providing unparalleled breadth and freshness across a wide range of in-demand skills. This instructor-driven model allows for a speed-to-market advantage in addressing emerging topics, as demonstrated by the rapid availability of courses on new technologies like DeepSeq AI.

The company is actively investing in AI to transform the learning experience and enhance its platform's value proposition, particularly for enterprise customers. Key AI-powered capabilities recently launched or in development include:

• Skills Mapping and AI-Driven Learning Paths: This technology helps organizations identify critical skills gaps and automatically maps them to relevant content from the Udemy Business collection. Management states this capability is reducing program creation time by 80% on average, enabling L&D teams to deliver targeted, high-impact development journeys aligned with strategic business outcomes.
• AI Assistant: Designed to personalize the learning experience for individuals, the AI Assistant helps learners discover and engage with relevant content, provides course and lecture summaries, and answers questions with step-by-step advice. Early indications suggest the Assistant will lead to increased learner consumption and engagement.
• AI-Powered Role Play: Launched in May 2025, this feature allows learners to develop soft skills through immersive, instructor-designed conversation simulations. It also enables organizations to create custom scenarios based on specific business challenges. The marketplace model facilitates rapid content creation for this feature, with creators publishing over 3,100 Role Plays in just four weeks since launch. The goal is to have thousands of role plays available by the end of 2025.
• Career Accelerators: Introduced in Q1 2025, these curated, role-specific learning paths guide learners towards career outcomes, supporting more personalized learning experiences.
• Integration of AI Protocols: Udemy is integrating Google's agent-to-agent protocol and Anthropic model context protocol. The model context protocol is expected to transform how learning leaders interact with the platform, allowing them to use natural language to design, deploy, and measure learning programs, potentially reducing tasks that used to take weeks to literally minutes.

These technological advancements are crucial for Udemy's competitive positioning. They enhance the platform's stickiness, embed Udemy deeper into customer AI transformation strategies, and provide quantifiable benefits in terms of efficiency and effectiveness compared to traditional or less technologically advanced learning solutions. While competitors are also incorporating AI, Udemy's two-sided marketplace model, augmented by AI tools for both creators and learners, is intended to unleash innovation at a scale that publisher models may struggle to match. The company currently boasts nearly 1,700 AI and machine learning courses on Udemy Business, including over 900 on GenAI, and approximately 4,000 GenAI courses on the marketplace. This content has already driven exceptional engagement, with 10 million course enrollments to date and new enrollments adding at a rate of 10 per minute. The launch of the Innovation Studio and the acquisition of Lummi further underscore the commitment to accelerating AI-powered product development and enhancing the content creation ecosystem.

Outlook and the Path to Profitability

Looking ahead, Udemy's management has provided guidance that reflects a strategic transition year in 2025, prioritizing profitability expansion while navigating external uncertainties and internal shifts. For the second quarter of 2025, the company expects revenue between $195 million and $199 million, representing approximately 1% year-over-year growth at the midpoint, including a 150 basis point headwind from FX. Adjusted EBITDA for Q2 2025 is projected at $22 million to $24 million, or roughly 12% of revenue.

For the full year 2025, the revenue outlook is set between $772 million and $794 million. This represents a slight 0.5% year-over-year decline at the midpoint, factoring in a 100 basis point headwind from FX. The guidance implies approximately 5% year-over-year growth in Udemy Business revenue (with ~50bps FX headwind) and an approximately 9% year-over-year decline in Consumer revenue (with 250bps FX impact). Management attributes the conservative top-line guidance to increased market uncertainty, recent geopolitical developments, potential cautious spending environments, and softer-than-expected consumer performance. Additionally, the strategic decision to reduce SMB sales capacity is expected to create a near-term headwind for the UB segment's growth rate.

Despite the tempered revenue outlook, the company is significantly raising its full-year 2025 adjusted EBITDA guidance to a range of $77 million to $87 million, or approximately 10% of revenue at the midpoint. This increase, up approximately $10 million from the prior outlook, underscores the impact of operational efficiency initiatives and disciplined cost management. Management explicitly states that the outlook bakes in a healthy degree of conservatism on the top line while raising the bottom line expectation.

This focus on profitability is part of a clear, multi-year plan. The company expects to deliver approximately $70 million in adjusted EBITDA in 2025, providing a path towards its target of $130 million to $150 million in adjusted EBITDA by 2026. The long-term goal is to expand towards a 20% adjusted EBITDA margin in 2027. The building blocks for this significant margin expansion include expected gross margin improvements from the ongoing instructor revenue share reductions and the continued revenue mix shift towards the higher-margin UB segment, coupled with the benefits from operational efficiency initiatives and overall operating leverage as the business scales.

The outlook signals that 2025 is a transition year where the company is absorbing the near-term revenue impact of strategic shifts and external pressures while aggressively improving its cost structure and profitability profile. The investments in AI capabilities, consumer subscription emphasis, partnerships, and localization are expected to lay the foundation for reaccelerated growth in 2026 and beyond, leveraging the stronger financial position achieved through operational discipline.

Risks and Considerations

While Udemy's strategic pivot towards enterprise and AI-powered learning, coupled with a focus on profitability, presents a compelling long-term thesis, investors should consider several key risks. The company has a history of net losses and an accumulated deficit, and there is no guarantee it will achieve or maintain profitability in the future, particularly as it continues to invest in growth initiatives. The online learning market is dynamic and competitive, with low barriers to entry, and existing or new competitors, potentially leveraging AI more effectively, could challenge Udemy's market position and pricing power.

The company's growth depends on its ability to attract and retain learners, instructors, and enterprise customers. The marketplace model relies on a limited number of top instructors, and changes to revenue share or other policies could lead to attrition. In the Enterprise segment, while the focus is on large customers, macroeconomic uncertainty has led to elongated sales cycles and pressure on net dollar retention, with upsells taking longer than historical norms. Continued softness in the macroeconomic environment, particularly in regions like EMEA, could further impact revenue growth.

Operating internationally exposes Udemy to risks from currency fluctuations, compliance with diverse and evolving privacy and data protection laws (like GDPR, CCPA, PIPL), and geopolitical instability. Cybersecurity threats, increasingly sophisticated with AI, pose a risk to platform availability and data security. Furthermore, the successful development and deployment of new AI capabilities are not guaranteed, and the rapidly evolving regulatory landscape for AI could introduce new compliance burdens and costs.

Management is implementing strategies to mitigate these risks, including operational efficiency measures, targeted investments in high-growth areas, strengthening customer relationships to improve retention and expansion, and continuous innovation in platform capabilities. However, the success of the mitigation efforts and the timing of market recovery remain subject to external factors beyond the company's direct control.

Conclusion

Udemy is undergoing a significant strategic transformation, shifting its focus towards becoming a leading AI-powered reskilling platform centered on the large enterprise market. This pivot, while creating near-term revenue headwinds in 2025 due to macroeconomic pressures and internal restructuring, is fundamentally aimed at accelerating the path to sustainable, profitable growth. The company's unique marketplace model, enhanced by a growing suite of AI-powered tools for personalized learning and content creation, provides a differentiated competitive position in a dynamic industry driven by the urgent need for skills development.

Recent financial results demonstrate the early impact of operational efficiency initiatives, with significant expansion in gross margin and adjusted EBITDA. Management's updated guidance reflects confidence in continued profitability improvement, targeting substantial EBITDA figures in 2026 and beyond. While challenges remain, including competitive intensity and macroeconomic uncertainty, Udemy's focus on high-return enterprise opportunities, coupled with disciplined cost management and a commitment to technological innovation, positions the company to potentially capitalize on the massive long-term opportunity in the global reskilling market and deliver enhanced value for investors.