Education technology is on a steep learning curve

Chegg, a seller of the $19.95-a-month Study Pack subscription for college students, saw its market capitalization cut in half in November after reporting a surprising drop in subscriber numbers during the third quarter. Subscriber numbers returned quickly—Check executives think Covid fatigue prompted students to postpone coursework—but its shares haven’t fallen by two-thirds from a year ago. Online course platforms Coursera and Udemy are down 51% and 42%, respectively, since their market debut in 2021.

In-person classes made it easier for these companies to sell their products because of the pandemic as search interest for “online courses” soared in 2020. Chegg saw revenue growth of 57% in 2020, which still turns out to be respectable. 8% in 2021. Both Udemy and Coursera saw growth of over 55% in 2020, followed by a slowdown in 2021. Udemy said in an earnings call on Wednesday that revenue grew 21% last year. Analysts polled by FactSet estimate Coursera has increased by 40%.

The pandemic may have driven some demand, but there was already a growing market for these services. For example, Chegg’s revenue grew 28% in 2019. And the sad reality: The worse the prospects of traditional educational institutions, the better the future of education technology companies.

In many ways, conditions for higher education were deteriorating before the pandemic. For example, college enrollment has declined every year since 2011. There are about three million fewer students enrolled in two-year or four-year institutions in the US today than they were 10 years ago, according to data from the National Student Clearinghouse. The falling birth rate is partly to blame, but also the fact that tuition has risen so quickly. After adjusting for inflation, tuition, fees and room and board costs in public institutions rose 28% over the 10 years ended the 2018- 2019 academic year, while it rose 19% for private colleges.

For Coursera and Udemy, the drop in enrollment opens up access for students looking for more affordable degrees, especially those that lead to job-based skills. For example, Coursera offers bachelor’s and master’s degrees for less than $20,000. Chegg is trying to expand in that direction, having bought coding boot camp provider Thinkful in 2019. Another tailwind for Udemy, which is trying to expand its business offerings, came from a tight job market in which companies can’t find outsiders. Candidates want to re-skill their employees. Burnt teachers, many of whom are leaving traditional positions, can also help forums attract top talent.

The picture is more mixed for Chegg, who requires college students to pay for his services. Still, while enrollment has slowed, the help needed will be unlikely as colleges face funding cuts, leaving fewer resources for students. Chegg had about 6 million customers in the US last year, which was about 35% of the total college population. Its recent success among international students means that its growth runway now looks longer.

One concern for Chegg is that its study packs, which provide homework help from online tutors, have allowed students to cheat. This is a real risk if it prompts institutions to ban Chegg. Last month, Chegg announced the launch of the “Honor Shield,” which allows professors to pre-submit exam questions that will prevent them from answering during a certain period of time. Still, the concern itself highlights how inept some students and professors are.

“One of the big reasons why professors don’t like Chegg is because they can’t reuse a lot of tests,” said Jason Cellino, equity research analyst at KeyBanc Capital Markets. “And many of them are paid less than they are asked to do.” He is bullish on the education technology sector.

They’re far from the only gripes of the traditional educational establishment with education technology companies, but they can turn their gentleman’s C to Dean’s List appearance with stock investors.

This story has been published without modification to the text from a wire agency feed