TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

<p>Coursera’s first quarterly earnings was confirmatory of our short thesis. The company guided to decelerating revenue growth as it begins to lap the surge in students from the pandemic, with little to no operating leverage, hardly the stuff of a stock trading 15x sales. A point that should’ve been obvious to us, but we didn’t really hit on enough in our recent initiation is how inversely correlated Coursera is to employment trends. As the pandemic recedes, the secular acceleration of online education will recede…AND the number of unemployed who had the time (and motivation) to take online courses at home will also diminish.  This will result in a sharper deceleration in Coursera’s top of funnel consumer learners, which will have a trickle down effect on the higher margin enterprise and degree tiers. We stay short, reiterate base case $33 and $20 bear case.</p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

Coursera’s first quarterly earnings was confirmatory of our short thesis. The company guided to decelerating revenue growth as it begins to lap the surge in students from the pandemic, with little to no operating leverage, hardly the stuff of a stock trading 15x sales. A point that should’ve been obvious to us, but we didn’t really hit on enough in our recent initiation is how inversely correlated Coursera is to employment trends. As the pandemic recedes, the secular acceleration of online education will recede…AND the number of unemployed who had the time (and motivation) to take online courses at home will also diminish.  This will result in a sharper deceleration in Coursera’s top of funnel consumer learners, which will have a trickle down effect on the higher margin enterprise and degree tiers. We stay short, reiterate base case $33 and $20 bear case.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

Coursera 1Q21: Rising Employment Will Decelerate Growth

<p><strong>Summary: </strong>Coursera, an online education platform will see its business model decelerate faster than expected. While the TAM trajectory of online education has clearly inflected higher due to the pandemic, we think  the Coursera’s growth trajectory is being mismodeled based on 2020’s surge in signups. Coursera’s profitability is dependent on scaling its enterprise and degree customer bases. While the demand for upskilling employees is real, intense competition from LinkedIn, Pluralsight, and others may crimp growth and gross margins segment, while a lack of leverage with its content suppliers (university partners), plus edX’s open source alternative  weaken revenue sharing over time. A lack of tangible evidence of Coursera’s skills-based credentialing translating to jobs will result in underwhelming consumer growth and lack of pricing power. Downside risks around regulation and competitive incursion by tech platforms paired with an obscene valuation make a compelling short case.</p><p> <strong>Base Case Valuation: $33                                  Bull Case: $57                                 Bear Case: $20</strong></p><p></p><div class="content-highlight"><p>Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</p></div>

Summary: Coursera, an online education platform will see its business model decelerate faster than expected. While the TAM trajectory of online education has clearly inflected higher due to the pandemic, we think  the Coursera’s growth trajectory is being mismodeled based on 2020’s surge in signups. Coursera’s profitability is dependent on scaling its enterprise and degree customer bases. While the demand for upskilling employees is real, intense competition from LinkedIn, Pluralsight, and others may crimp growth and gross margins segment, while a lack of leverage with its content suppliers (university partners), plus edX’s open source alternative  weaken revenue sharing over time. A lack of tangible evidence of Coursera’s skills-based credentialing translating to jobs will result in underwhelming consumer growth and lack of pricing power. Downside risks around regulation and competitive incursion by tech platforms paired with an obscene valuation make a compelling short case. Base Case Valuation: $33                                  Bull Case: $57                                 Bear Case: $20Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

United States

Chegg, Inc. provides online educational platform. The Company offers homework help, course selection, note taking, manuals, and textbook rentals services. Chegg serves customers throughout the United States.

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Chegg Inc (CHGG US)

Coursera 1Q21: Rising Employment Will Decelerate Growth

Coursera’s first quarterly earnings was confirmatory of our short thesis. The company guided to decelerating revenue growth with little to no...

Aaron Gabin

Coursera: Back to School

Coursera, an online education platform will see its business model decelerate faster than expected. Downside risks around regulation and...

Aaron Gabin

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