Udemy, Inc. Q4 FY2021 Earnings Call

Thank you for joining us today for Udemy Fourth Quarter and Fiscal 2021 Call. I would now turn the call over to Taylor Joel.

Thank you. With me today are Gregg Coccari, Udemy’s CEO; and Sarah Blanchard, Udemy’s CFO. Before we begin, during this call, we may make forward-looking statements within the meaning of federal security laws. These statements involve assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those discussed or anticipated. For a complete discussion of risks associated with these forward-looking statements, we encourage you to refer to our most recent Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. Our forward-looking statements are based upon information currently available to us. We caution you not to place undue reliance on forward-looking statements, and we do not undertake and expressly disclaim any duty or obligation to update or alter our forward-looking statements, except as required by applicable law. In addition, during this call, certain financial performance measures may be discussed that differ from comparable measures contained in our financial statements prepared in accordance with the U.S. Generally Accepted Accounting Principles referred to by the Securities and Exchange Commission as non-GAAP financial measures. We believe that these non-GAAP financial measures assist management and investors in evaluating our performance and comparing period-to-period results of operations in a more meaningful and consistent manner as discussed in greater detail in the supplemental schedules to our earnings release. A reconciliation of these non-GAAP measures to the most comparable GAAP financial measures is included in our earnings press release. These reconciliations, together with additional supplemental information, are available at the Investor Relations section of our website. A replay of today's call will also be posted on the website. I will now turn the call over to Gregg.

Thank you for joining us. We're very pleased with our performance in the quarter, which came in ahead of guidance. We experienced continued extraordinary growth in our momentum business, which grew 81% year-over-year contributing to our overall top-line growth up 25% versus 2020. In the quarter, more than 32 million unique visitors per month visited our consumer marketplace, and we reached over 10,500 Udemy business customers. As we look to 2022, we see the tailwinds of upskilling and reskilling driving Udemy business's strong ARR, which was 239 million exiting the fourth quarter. In Q4, our consumer business returned to growth, and we believe it has stabilized at roughly 1.3 times pre-pandemic revenue levels. Global traffic remained strong and we continue to see more than 5,000 new courses published each month. Our consumer marketplace is the engine that provides high-quality content for Udemy business and helps generate the leads driving its growth and success. Our marketplace allows us to maintain our affordability and accessibility, and it's where tens of millions of learners help us identify the fresh high-quality, relevant content that is a true differentiator for us. With content in more than 75 languages, our consumer marketplace enables us to expand the reach of Udemy Business to now include 13 language packages, most recently in Polish and Korean. In addition, we built tools and playbooks that we believe our Udemy Business customers need to attract, retain, and engage their employees, driving phenomenal ROI and an impressive learner net promoter score of 61. Our ability to provide a broad array of high-quality content to enterprises, on a truly global scale, is driven by our consumer marketplace, and it's what puts Udemy Business in a league of its own when it comes to supporting global organizations. We continue to see increasing traction in our second quarter as a public company. In the quarter, we had 440 Udemy Business customers with 100,000 ARR in our first view with a total contract value of over 5 million as enterprise customers increasingly see the value of what we provide in the future of work. To illustrate, let me give you an example. We are working with EY, one of the largest professional service networks in the world. Of EY’s 340,000 employees, 200,000 are currently using Udemy Business as their prioritized learning. EY’s goal is to enable employees to learn in a virtual world, and using the Udemy Platform they are experiencing great success. They hold an impressive employee learning satisfaction rate of 84%. Udemy Business is also collaborating with EY on their Badges program as a key content provider. This program enables employees to hone their digital and leadership capabilities and earn Badges for future-focused skills, such as data science and AI, transformative leadership, inclusive intelligence, and more. Udemy Business is also collaborating with EY on their three Masters’ programs, which is offered in association with Hult International Business School. Our content is crucial to the program, which is available to all EY employees free of charge. Learners are the reason we exist and their stories motivate us every day. Our social impact program is one of the many ways we seek to fulfill our mission. On Veterans Day, we announced the Signals of Freedom as our latest social impact partner. We’ve partnered to help severely wounded post 9/11 veterans, who are referred to as Sentinels, in identifying and achieving the skills they need to build long-lasting and successful careers in their chosen disciplines. The program is designed to meet each veteran’s individual needs, assisting them with their higher education, offering ongoing mentorship, life skills coaching, career development, networking, and financial assistance. We also support Upwardly Global, a non-profit that aims to eliminate the inflow barriers that skilled immigrants and refugees encounter when entering the U.S. workforce. Our partnership gives job seekers access to learning resources that prepare them to pass industry-recognized certifications and secure new jobs. We have two amazing stories of Upwardly Global learners who changed their lives through the program. Originally from Kazakhstan, one learner had more than five years of experience in logistics and was looking to pivot his career to IT. With no IT background, his Upwardly Global coach advised him to enroll in a CompTIA A+ course on Udemy. With the IT skills he learned on Udemy, he landed a job as a Help Desk Analyst at the world's largest home improvement specialty retailer. Likewise, another learner, who was a project manager in Afghanistan, joined Upwardly Global to learn about the systems and technologies that are relevant in the U.S. job market. He began taking project management courses on Udemy Business and honed his project management skills to become more competitive for U.S. jobs. He has since successfully landed a job as a senior construction project scheduling consultant at a construction services company. Our instructors are at the heart of Udemy’s success and our learners’ engagement. During the year, we had 34 instructors who earned over $500,000 and 19 who earned over $1 million. In 2021, our paid instructors earned 177 million from Udemy for their courses. Let me share a few examples of how our instructors create content that moves at the speed of market change. In October, Udemy instructor Alan Rodrigues published a course on Azure Networking Solution, a full month before the AZ-700 exam was updated. Alan then updated the course content again in December to ensure that it was as relevant as possible to the Azure Networking exam. Alan’s commitment to fresh quality content has attracted more than 350,000 learners from around the world. So, many other instructors are also benefiting from the Udemy marketplace. This year, Chris Haroun, who teaches Business and Self-Improvement courses, had his best year yet on Udemy, crossing the 1 million student milestone. One of his students took one of Chris' Udemy classes a few years back. They became friends and eventually met in person at a Udemy event in 2019. They decided to combine their business acumen and engineering skills to build a school in Rwanda, near the village where the student was raised. Now they plan to build schools in other geographies struggling with access to education. Instructors like Chris inspire us every day. We believe our investment in their talent is key to our differentiation and social impact. We also have partners that help us maintain our place as the most global online education platform. Last quarter, we announced new partnerships with Woongjin ThinkBig in Korea, Sanjieke in China, and MultiChoice Group in Sub-Sahara Africa. While it is still early, we expect these to lead to the same kind of success we're enjoying with our partnership with Benesse in Japan, which is one of our fastest-growing markets. We'll continue to add partners as we systematically expand our presence internationally. Our partners extend our reach in terms of creating content, understanding the local markets, and bolstering our Salesforce and brand. To keep pace with the demand for upskilling and reskilling, we track our business customers and their employees' use of our platform. We recently published our 2022 workplace learning trends report in which we analyze trends based on what employees are learning across thousands of customers around the world. The range is broad and reflective of the change in the workplace. The top skills sold on Udemy in 2021 included power skills for leaders and management, where we've seen triple-digit growth in categories like office productivity, leadership, and management, and personal growth over the past year. Employees are also seeking productivity and collaboration courses, personal development and wellness courses, and technical training courses such as Google Cloud, which was up 645%, and Microsoft AZ-500, nearly 400% versus a year ago. We are on the front line of helping employees cope with evolving job requirements at a time of rapid change. We facilitate learning with more than 5,000 new courses created each month, over 40% of which are in languages other than English. To ensure that the incredible depth and breadth of our marketplace is user-friendly, we're continually improving our platform. During the quarter, we rolled out support for eight new local currencies across geographies, including Chile, Malaysia, and Nigeria, bringing the total number of currencies we support to 28. Additionally, we released three new payment methods that provide learners in different countries with a more seamless checkout experience and now pay later capabilities. Consistent with our commitment to being affordable, accessible, and localized. As part of our Udemy Pro offering, we launched benchmark assessments, which show learners key metrics such as their score, percentile rank, and knowledge classification. This is a critical stepping stone to providing organizations with insight into skills gaps they have and how Udemy is helping them fill those gaps. Additionally, we have released 10 new software development labs within Udemy Business Pro. Labs provide a hands-on learning experience that allows learners to apply their skills by completing real-world projects using interactive environments. In the quarter, we also integrated better our personalized lecture recommendation tools based on our machine learning algorithms. This is all part of our commitment to improving the learner journey. In Q4, we received a number of awards recognizing our product innovation, company culture, and organizational leadership. G2, a leading global review site, ranked Udemy Business as a leader in 26 reports across several categories, including online learning platform based on high levels of customer satisfaction and likelihood to recommend. Our Dublin office was officially certified as a great place to work in Ireland, and Inc. Magazine named Udemy as one of the best-led companies in America. Udemy was founded to make learning accessible and inclusive, and we take the responsibility of serving our learners and instructors very seriously. As we shared in our previous earnings call, we're incredibly proud to have been ranked by Sustainalytics in the first percentile for ESG risk ratings in the Internet software and services sub-industry as of July 2021. In January, Sustainalytics also awarded Udemy its ESG Industry Top Rated badge for 2022. We've barely scratched the surface in our $200 billion TAM, and we believe Udemy Business is the fastest-growing enterprise learning platform, with a compounded annual revenue growth rate over 100% since its inception in 2015. We look forward to sharing our progress with you throughout the year as we help transform learning and the way we work with our vibrant consumer marketplace and exceptional Udemy Business platform. With that, I'll turn the call over to Sarah.

Thank you, Gregg. The phenomenal growth of Udemy Business, the progress in consumer subscriptions, personalization, and immersive learning capabilities, our strategic partnerships in Africa, Korea, and China, made it quite a quarter for us. Q4 revenue of 138 million was up 25% year-over-year and up 6% sequentially. Udemy Business revenue was 58 million, up 81% from the prior year, an exceptional growth rate at this scale. Our consumer business delivered 80 million, up 3% from the prior year. The consumer segment has stabilized and is on a path to future growth as we return to the new normal. We've seen significant traffic growth in certain geographies, which have a lower price point, allowing us to maintain our focus on unit economics. While we are really excited about the growth in these regions, it is harder to predict mix and retention as it differs by country. For that reason, we are expecting consumer revenue in the first half of the year to be flat to slightly down versus the first half of 2021, and we are continuing to prioritize consumer subscriptions, which will provide increased visibility over time. For the remainder of this discussion, all financial metrics are non-GAAP, unless explicitly stated otherwise. Q4 gross profit was 75 million, up 38% year-over-year, driven by the strong results in Udemy Business. Gross margin was 54.6% of revenue, approximately 500 basis points higher than Q4 of 2020. The mix shift toward Udemy Business combined with a softer December drove the increase in gross margin. As a reminder, we see gross margin suppression when we have spikes in GMV as instructor costs are recorded immediately, but revenues recognized over a four-month period. For fiscal year 2021, gross profit was 285 million, up 29% versus fiscal year 2020, and gross margin was 55% of revenue, approximately 350 basis points higher than in 2020. Our content revenue consists primarily of content costs, which are payments to instructors. As a reminder, content costs depend upon the mix between consumer courses and Udemy Business learners. We expect content costs as a percentage of revenue to decrease over time as Udemy Business becomes a larger portion of overall revenue. Turning to OpEx, total operating expense was 102 million or 74% of revenue, compared to 66% in Q4 last year. Sales and marketing expense represented 49% of total revenue, compared to 44% in Q4 of 2020, driven by the shift towards Udemy Business and our investment in our global go-to-market team. Udemy Business represented 42% of our revenue in Q4, up from 29% a year ago. Research and development expense was 12% of revenue, flat with the year-ago period, as we continue to increase investments in immersive learning, consumer subscriptions, and further improve our personalization and machine learning capabilities, all part of our efforts to drive growing outcomes and higher LTVs. General and administrative expense was 13% of revenue versus 10% a year ago, as we ramp for public company readiness. Total OpEx in fiscal 2021 was 324 million or 63% of revenue compared to 61% last year. Sales and marketing expense represented 42% of total revenue, compared to 43% in 2020. Research and development expense was 11% of revenue consistent with the year-ago period. General and administrative expense was 9% of revenue versus 8% a year ago. Net loss in the quarter was negative 26.8 million or negative 19% of revenue. Adjusted EBITDA was negative 22.6 million or negative 16% of revenue. In order to capture our huge TAM and continue the momentum in Udemy Business, we will continue to incur short-term losses while incrementally meeting leverage for longer-term profitability. Free cash flow was negative 1.6 million versus positive 15.4 million a year ago. Net loss in the fiscal year was 41.3 million or negative 8% of revenue. Adjusted EBITDA was negative 25.4 million or negative 5% revenue versus negative 30.7 million or negative 7% of revenue a year ago. Free cash flow was negative 25.3 million versus negative 4.9 million a year ago. Adjusted EBITDA and free cash flow were impacted by public company-related costs and a softer than expected December, which is a key month for us due to the holidays. Moving on to the balance sheet. We ended the quarter and the year with 534 million of unrestricted cash, cash equivalents, and marketable securities. Looking at the consumer and Udemy Business segments individually, consumer revenue in Q4 was 80 million, up 3% versus a year ago. In the quarter, we had approximately 1.4 million monthly active buyers, up 1% year-over-year. Consumer gross profit was 39.4 million or 49.2% of consumer revenue, approximately 300 basis points higher than in Q4 of 2020. During the quarter, we had 2.5 million new consumer and business learners, bringing our total learner base to 49 million. As Gregg mentioned, our consumer business is the engine that feeds broad, high-quality content and leads to Udemy Business and is a huge differentiator for us. While we are pleased to see it stabilize at a significantly higher level than pre-pandemic, what’s most important is that the marketplace remains healthy, that our instructors continue publishing high-quality content, and that we can access the local content that fuels Udemy Business. The marketplace continues to provide more than 5,000 courses a month across an extremely wide variety of topics, which we are able to curate into a very compelling offering for organizations. To that point, the exceptional growth in Udemy Business continues with Q4 revenue of 58 million, up 81% year-over-year. We exited the quarter with over 10,500 Udemy Business customers, up 44% year-over-year. Udemy Business's net dollar retention rate was 118% and ending ARR of 239 million was up 74% compared to the prior year. Going forward, Udemy Business should continue to grow rapidly with revenue expected to exceed consumer revenue before the end of the year. We are really excited about this. Our ARR is best-in-class, as is our growth at scale and the continued revenue shift towards Udemy Business increases our top-line visibility. Udemy Business gross profit was 38.6 million or 66.9% of Udemy Business revenue, which represents a roughly 200 basis point increase year-over-year. This increase was largely due to revenue from our partnerships, which have lower support costs in our direct sales channel. For fiscal 2021, consumer revenue was 331 million, up 1% versus a year ago. We had approximately 1.3 million monthly active buyers, down 7% year-over-year as we dealt with COVID comps. Consumer gross profit for the fiscal year was 172 million or 51.9% of consumer revenue. Fiscal 2021 Udemy Business revenue was 187 million, up 81% year-over-year. Udemy Business gross profit in 2021 was 123 million or 65.8% of Udemy Business revenue. Looking to the first quarter of fiscal 2022, we expect revenue between 124 million and 128 million with Udemy Business expected to deliver year-over-year revenue growth over 70%. We expect an adjusted EBITDA margin of negative 11% to negative 9%. For fiscal year 2022, we expect revenue between 610 million and 640 million with Udemy Business revenue between 300 million and 310 million representing growth of 60% to 66% year-over-year, and consumer revenue between 310 million and 330 million down 6% to flat year-over-year. While we won’t provide annual guidance by segment going forward, the nature of the current consumer market provides us with less visibility into full-year consumer revenue, so we are sharing a wider range. In contrast, the SaaS model of our Udemy Business segment provides greater revenue predictability, and we are confident with our forecast here. We expect an adjusted EBITDA margin of negative 12% to negative 10%. While we are still experiencing some volatility in the consumer business with certain countries up and others down year-over-year, our Udemy Business segment is even stronger than we expected. Our customer satisfaction, as Gregg mentioned, is exceptional and we are continuing to build and improve our offering to ensure we provide the very best learning experience. We have a unique vantage point. We can see the consumer business country by country and are able to manage our consumer marketing spend accordingly as we work through this pandemic. At the same time, Udemy Business is growing rapidly across the globe, which increases our visibility. In R&D, we are investing in areas that we think will have the most impact in driving monetary outcomes, increasing GMV over time, and delivering better unit economics through consumer subscriptions and increased retention. We remain focused on executing against our long-term strategy and while we are increasing our investment for the year, given the outsized success of Udemy Business, we expect to see much less of an impact in cash flow, which is a modest increase in cash burn for the year. And with that, operator, please open the call for questions.

Thank you. Our first question comes from Rob Oliver, Baird. Your line is open.

Great. Thank you guys very much. Good afternoon. Can you hear me okay?

Yes, I’m clear.

Great. Great. Thanks. Appreciate it. Sorry, a little background noise here. Gregg one for you and then I had a follow-up for you, Sarah. So, Gregg, clearly, you guys are firing on all cylinders here on the Udemy for Business, the UB business, some really strong logos on new lands, really great logos on expansions. I'm curious you guys mentioned, sort of the curation of some of the courses around UB, and I'm wondering if you could just help us understand on those expansions because NRR is like stabilizing nicely now? On those expansion deals you're seeing for UB, is it still predominantly IT or are you seeing more of an HR driven by, a little bit more color around those deals would be great? And then I had a quick follow-up for Sarah?

Yes Rob. It's actually very broad-based. So, we come in both sides of the house. We come into the HR side and we're selling successfully in there, and we come into the tech side. So, it's very broad-based on both sides of the company. The expansions are impact teams, but they're also much broader than that. Our content tends to be very broad. We have all kinds of learning content and leadership content and communication content. So, it works for almost every person in the corporation. So, it's a broad-based expansion.

Okay, great. That's great to hear. And then Sarah, one for you. Just on the consumer business and I don't want to distract from the obvious here, which is the UB business is getting really, really strong and going to be the majority of your revenue this year, but on the consumer side, some caution, I think in the guidance, I wanted to just drill down on the personal plan, the subscription, you mentioned that's going to be an increasing focus in an uncertain environment. Just from my own navigation and being a customer with you guys, I was not offered the virtual plan, but then all of a sudden now I am being offered. So, just wondering if you guys are expanding out the personal plan and any early reason traction and whether that $29 price point feels right, and any update there would be great? Thank you guys very much.

Awesome, Rob. I would say you're a lucky Udemy learner because not many people are seeing the personal plan yet. We are still in testing mode, as we spoke about. So, we plan in beta mode for the first half of the year. Our investments are not just in the subscription platform, which we've built out from a pricing and packaging perspective, but we're doing testing there. You saw one price, but there are different prices we're testing. But really what we're focused on is the learning outcomes building and learning paths and really making it a very compelling subscription offering. We see successful subscription offerings in the market. We have great content, and so just rounding out that offering so that it's the subscription we want to roll out to the masses is what we're focused on, and we don't expect the rollout to be until the second half.

Got it. Very helpful. Thank you guys very much.

Thank you. Our next question comes from Terry Tillman of Truist. Your line is open.

Hey guys. This is indiscernible on here for Terry. Thanks so much for taking the question. I think last quarter, you mentioned that you'd incorporate some new machine learning capabilities to enhance functionality around conversion retention in the consumer business. I was just wondering if you're seeing any traction there to help stabilize this business?

Yes. So, we've invested a lot in AI and machine learning, it's something that we’re doing across our business. So, we use it in our pricing engine. We use it in matching and recommendations, and we're using it in numerous places. So, we're actually seeing some wins there, though. In their matching and recommendations, we did have a nice lift in the fourth quarter. We saw the ability to increase conversion rates by doing a better match on the types of courses people were looking for.

Okay, That's great to hear. And then just as a follow-up, I think last quarter you mentioned that the go-to-market team was at about 400 people. I’m just wondering if that increased sequentially and then just – like a broader level, how is the overall hiring environment for Udemy and what should we think about the headcount being as you exit 2022? Thanks so much.

Yes, the go-to-market team, that's going to market plus customer success with the 400 number. We've grown our go-to-market team about 50% last year. Our plans are to grow again about 50%, maybe a little bit more than that. We are finding, it is a difficult hiring environment, but we ended up doing very well. We're the kind of company that people like to work for. We’re a mission-based company, we're doing well in the marketplace. We've got a very nice culture. So, we've been hiring. In fact, December was our biggest hiring month in the history of Udemy Business.

Yeah, just to give you a little overall color on that. We were able to hire 50 people in Udemy Business in December, which was well above what we were expecting, especially given it's really tough to hire salespeople. In the fourth quarter, when they're getting in their accelerators. So, we're pleased with what we see. We continue to see a lot of traction in hiring both across Udemy Business and within our R&D teams. So, I think Gregg’s right. I think it's the culture, the mission, and the belief in where this company is going that really helps us.

Really helpful quantitative color. Appreciate it.

Thanks for the question.

Thank you. Our next question comes from Sterling Auty of JP Morgan. Your line is open.

Hey, this is Drew on behalf of Sterling. You mentioned that December was softer than anticipated. Can you share more details on what happened during that month and any seasonal effects you're currently observing?

Yes, the consumer market is volatile. In other words, in some countries, the traffic is growing quite rapidly and some of it is going down. In December, we just saw a little volatility; it actually came back in January. So January, it stabilized again. But it's a volatile consumer market as they're closing down countries, it's still pandemic-related where certain countries are closing down, while others are opening up. So we're just having to weather that type of environment, but we are very happy with our traffic. Our overall traffic has remained over 30 million unique visitors. We came into the pandemic with about 16 million to 18 million unique visitors. So, we've stabilized at a much higher level than we had before. Yet, it is still volatile, given that we're entering year three of the pandemic.

I think for us to add to that, as Gregg said, we're very diversified globally. So, we see countries that are going up. We see countries that are stable, and countries that declined a bit. A lot of the growth we're seeing are in some of the lower LTV or lower purchasing power countries, but we're able to allocate our spend, and we can lean in where we're seeing good conversions; we can pull back where we're seeing the conversion that is good. So, we're managing our direct marketing spend accordingly as we continue to sort of work through this.

Okay, got it. Thank you.

Thanks.

Thank you. Next question comes from Stephen Sheldon of William Blair. Your line is open.

Hey, thanks. Congrats on the strength in the business segment. Curious what the waiver and talent shortage across industries maybe meant for demand for your enterprise solutions. I guess, what trends have you seen in corporate learning budgets? Are they going up and what's their level of urgency to provide upskilling opportunities to existing employees in this environment or maybe they can't hire as much as they'd like externally?

Yes, we are seeing a very good enterprise business. The market is expanding right now. People are working from home, and a lot of the training is transitioning to digital formats. So, the digital transformation is accelerating across all the enterprises. It's a very, very good market right now, so the budgets are getting bigger and there is a sense of urgency. People are leaving; there is a great resignation. People are worried about retention and worried about employee engagement. It’s a particularly good time. We think we have a great solution and we're at the right place at the right time with the right solution in the enterprise business, but the market is particularly good.

Great. Thank you.

Thank you. Our next question comes from Ryan MacDonald of Needham & Company. Your line is open.

Hi. Thanks for taking my questions. Gregg, you've talked about quite a bit in the past about international expansion remaining a top priority for Udemy over the next few years here. Given that perspective, I'd be curious how you're prioritizing and focusing on which countries to drive incremental investment? And how that maybe differs based on what you're seeing in the consumer side versus what you're seeing in the enterprise side? Thanks.

Yes, thanks for the question. We've always been the most global education technology company. More than 70% of our consumer revenue is outside the U.S. and we have a playbook that we look where there are obviously large populations. Content is being consumed very highly. We start working on our playbook; we put somebody into the market and start developing local content, we do local currencies, local payments, and then we bring go-to-market teams. So that's a playbook that we've been running and we're running it across the globe. There are various different investments depending on the country, but right now, for example, we're working in Indonesia, we're building our business there, and we're investing heavily. In Asia, we've moved into Korea and China through partnerships, and we're expanding there. We're also working in Sub-Sahara Africa with MultiChoice, with a partner there. So, we're expanding in many different directions. As far as Udemy Business, we are expanding across the globe, and it's very broad-based. We are building our go-to-market team; we started in North America, built out in EMEA next, and now we're building our Latin America presence. So, we are building out a global go-to-market team.

That's helpful. Maybe just as a follow-up and this is for, I think Sarah as well. I think you mentioned in your prepared remarks Sarah that you get a slight gross margin benefit on Udemy Business from the mix of sales coming from partnerships there. So, as you think about continued expansion of Udemy Business into new countries, is there a preference or prioritization to try to go to market with partners in UB or go directly being the preferred choice still? Thanks.

That's a great question, Ryan. It's a very minor benefit in comparison to us really making the right decision for that country, whether we can do it ourselves, and we know we can bring the best go-to-market strategy, or whether our partner is the best. So, I think that supersedes the small benefit we get in gross margin.

Super helpful. Thanks again.

Thank you.

Thank you. Our next question comes from Brent Thill of Jefferies. Your line is open.

Hi guys. This is David on for Brent. Thanks for taking the questions. I'll start with one and have a follow-up and sorry if I already missed this, but just curious if you could talk on the consumer side. With what we're seeing, is this a competitive thing at all or is this really just lapping super tough COVID comps and people are going back outside? Just curious if you could talk to – is it a competitive dynamic or rather consumer behavior?

It's consumer behavior. We're seeing, in certain markets, the overall traffic for online learning going down. There's certain markets we call them fatigue markets that have been on Zoom for two years, and we're seeing that in some markets, but then conversely, in others, the traffic is growing rapidly. So, it is not a competitive issue. It is a total – we have the most traffic of any learning website in the world with almost 30 million unique visitors. So, we see more data than anybody else and more globally than anybody else. It is really a pandemic issue versus a competitive issue.

Got it. Thanks for that color. And then as a follow-up on adjusted EBITDA guidance came in below the Street, I'm curious if that would mean the Street being too high, or if there are areas that you guys are focusing on prioritizing investments. And just curious if you can provide some color on that end?

Yeah. So, I think you've seen our Udemy Business performance; it continues to exceed our expectations and continues to outperform. We're further accelerating the expansion of our global go-to-market team. We have an unheard of learner NPS of 61 in the space. We’ve got 80% growth at scale and we are not feeling that we're getting anywhere close to the edges of that. And frankly, the hiring has gone much better than we have expected, so we're leaning in hard on Udemy Business. In general, when you think about our business as a whole, the enterprise business is growing really fast, but it does have a lower EBITDA margin than the consumer business. So, I think with the consumer guidance being down a little bit, that's what we're experiencing.

Great. Thanks guys. Appreciate it.

Thank you. Our next question comes from Jason Celino of KeyBanc. Your line is open.

Great. Thanks. Hey Gregg. Hey, Sarah. Can you hear me alright?

Yes, we can.

Perfect. So, it's nice to hear the stats on the instructors who are over $500,000 and $1 million last year, but when we think about attracting the best instructors, how is that positioned for growth for the upcoming year?

Yes. So, we're finding that our publishing is at record levels. We're publishing over 5,000 courses a month. We're bringing in top people. In fact, we just brought in two top instructors from a competitor in the last couple of months. Because we monetize very well for the instructors, our instructor payments this year are going to be over 200 million, so we are having no trouble in getting the instructors we want and getting the publishments that they want. In fact, this is part of the new creator economy. We are a place where they know they can come, make money, and feel successful. So, we work very well with them. So that has not changed at all. It's been very robust.

Okay. Perfect. And then when we think about the consumer business, the conversion between the monthly average buyers and the top of the funnel. When we crunch it down, it looks like it stabilized a little bit, at least for Q4, but with the guidance for 2022, maybe can you speak to what is implied directionally for this year?

Yes. So, I think Jason, in the first half, we're not expecting a lot of growth in monthly average buyers. I think in the back half, really what we're looking to do is drive more LTV from our buyers through subscriptions over time and through personalization and retention efforts versus trying to get more back to growth coming from the monthly average buyers.

Okay, excellent. That's quite helpful. Thank you.

Thanks, Jason.

Thank you. Our next question comes from Josh Baer, Morgan Stanley. Your line is open.

Great. Thanks for the question. It's great to hear about the progress in Udemy Business and Udemy Pro features specifically benchmark assessments and labs. I'm just wondering what else are you working on around Udemy Pro? What else are enterprises asking for, and how does this tie into the EBITDA guidance and some of the investments that you're making?

Yes, thank you for the question. For Udemy Pro, we’re building up multiple verticals. We started with AWS and web development and we’re building out Google Cloud and Azure. So, those are things that we're being asked to build from the various verticals in different companies. On the other side, we're being asked for leadership training. The reason why we bought CorpU was that we are being asked for more leadership training, which is something that every company needs more of, and so – and cohort-based learning. We’re building out a CorpU; we're starting with leadership, ramping that up, and then we'll build out other verticals and other cohort-based learning.

And Josh, just from an investment perspective, our investment on the R&D side is what we were expecting; it's really the sales and marketing in the Udemy Business side that we're accelerating this year because we continue to see that traction, and we're taking our expectations for Udemy Business revenue up.

Okay. That's great. Thank you.

Thank you.

Thank you. Our next question comes from Nat Schindler of Bank of America. Your line is open.

Yes. Hi guys. Thank you for taking my question. I just wanted to talk a little bit about Udemy Business and its seasonality, and what you're seeing in kind of your guidance. Remember, this is you basically have been a layering effect, and you've been adding. The last two quarters, this quarter about 7.4 million over Q3, Q3 is a little over 8 million, and it's kind of been layering up; you've been cycling up from earlier in the year and from last year, but in your guide, and I know you said 70% plus, and you didn’t fully break it out. So that might mean it, but at 70% it means a pretty big step down in that layering. Is there any sort of seasonality that we should be aware of on 1Q or how this business should work on when you win customers and when the revenue flows through?

Great question Nat. Yes, there is seasonality in our business. Like many enterprise SaaS companies, we do tend to have our biggest quarter as Q4. We had a great Q4. We had a great amount of focus in December, and you do tend to see the stabilization is going to happen again in Q1 and then you continue to grow throughout the year. So, think nothing yet normal. The buying cycle really is in Q4 from any enterprise. We work as hard as we can to even it out throughout the year, but I think that's a secret that most enterprise SaaS businesses haven't figured out.

But wouldn't that layering on a lot of new customers in Q4 mean real growth in Q1 because those customers didn’t come in the beginning of October in Q4? They came throughout Q4 and thus they are now a full quarter's worth of revenue in Q1?

Yes. So, we layered out a lot of customers. I think customer size is also something we have a lot of people who are just coming into the team plan on their own. And so that growth rate of the customers can also be attributed to different types of customers. I will say our average deal size is growing every quarter; that ARR per logo is going up and we do expect that trend to continue.

Okay. Totally different than on, still asking about Udemy Business, I’m just going on a longer-term basis and kind of more – what's going on strategically. Why have customers left, that have left or cut down their spend on Udemy Business that have cut down the spend? What is it really – what happens? Do they look for competitive offerings sometimes or did they just say they don't need it as much? If this happened?

So, our retention is much higher on corporations that are over a thousand employees. The bigger the corporations, the longer they stay, and the higher the net retention. There are lots of reasons why people leave. We have a huge small business segment, and so there is a lot of churn that happens there. We have a team plan, so we get all these customers that come in, and they're small 5 to 20 seats, and there's more churn going on there than managed accounts, which have less churn. There are just a very wide variety of reasons. Competition is always part of it, but not the biggest part. It's businesses either are doing well or have decided to do other things. So, it’s not – Sarah, what’s your …?

Yeah. I mean, we'll see some with budget issues. The one thing I do want to mention is our net dollar retention is 118% across all of our customer segments, but for our larger customers, it's well above 120%. So, we tend not to see the larger customers that we're supporting with our customer success teams, and aligning with them on what their business goals are in partnering with Udemy. We tend not to have much churn there, but once in a while, competition not as often and sometimes just a bunch of every reasons.

Makes sense and just to clarify one last thing, what percentage of the Udemy Business revenue is from customers over a thousand employees versus the smaller customers? In just round figures if you don't want to give out total?

It's a pretty good portion. I don’t want to give out an exact number, but we have a lot of really large customers; more and more. I think you probably heard in our prepared remarks that we just had our first deal that’s over $5 million. The amount of ARR coming from our price-size customers is growing faster.

Makes sense. Thank you.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Gregg Coccari to close the call.

I just want to thank everybody for their time and for asking very nice questions. I appreciate you looking at Udemy. We are very excited about our business. We think we have an extraordinary opportunity in the marketplace, and I hope that you'll be seeing that over the next few quarters.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day. Goodbye.