Byju's road from $22B to $3B ??

Byju's, a pioneering force in edtech, has experienced a noteworthy journey marked by substantial growth and occasional challenges. Renowned for its innovative learning solutions, strategic acquisitions, and global presence, Byju's has emerged as a leader in online education, however its valuation has dramatically reduced in last year due a series of challenges.

0 to 1 - The nice bits

• Growing subscribers: 250k in 2016, 40m in 2019, 80m in 2021, 150m?in 2022
• Funding raised: $6B in 27 funding rounds
• Market valuation: $22B by Oct 2022

1 to ? - The brewing storm

Revenue Recognition

Revenue recognition is a critical aspect of financial reporting that ensures accurate representation of a company's financial health. It involves the proper identification of when revenue is earned, rather than when it is received. Delays in filing financials and discrepancies in revenue recognition practices can have significant implications on a company's financial reporting and transparency. According to accounting principles, revenue should be recognized when it is earned, regardless of when the payment is received.

Example 1 - if Byju's sold a course in 2021 but received payment in 2022, the revenue should have been recorded in 2021 when the course was sold.

Example 2 - For multi-year courses where the entire fees were paid upfront, the revenue recognition should be spread over the duration of the course. By recognizing only the fees corresponding to the specific year, companies provide a more accurate representation of their financial performance.

Byju's was not following these standard revenue recognition practices. Instead, the company was recording all revenue in the year it received the payment, leading to potential distortions in its financial statements. In response to these discrepancies, Deloitte, the external auditing firm, recommended a correction in Byju's revenue recognition practices. Specifically, Deloitte suggested deferring 40% of the revenue, aligning with the principle of recognizing revenue when earned.

$1.2 Billion Term Loan B

Definition - A term loan made by institutional investors whose primary goals are maximizing the long-term total returns on their investments. TLBs typically mature within six to seven years and have a small repayment schedule (usually about 1.0% of the principal amount of the loan per year, payable quarterly) during the term of the loan, with the remainder due on the maturity date.

The $1.2 billion Term Loan B obtained by Byju's is characterized by its structure, featuring smaller periodic installments and a substantial bullet payment scheduled for the end of the loan term. This structure poses a heightened risk for lenders, as the repayment burden becomes concentrated towards the conclusion of the loan period. This illustration from ET shows detailed timeline of loan and associated controversy.

Ambitious Acquisition Spree

Made a total of 19 acquisitions till date

• Acquisition of WhiteHat Jr. for a reported 300 million, twice the initial sales valuation of 150 million
• In July 2021, acquisition of Epic, a U.S.-based digital reading platform for children, valued at $500 million
• Acquisition of Akash Educational Services in April 2021, valued at around $1 billion

It has been a mixed bag of overpaid and yet-to-profit acquisitions. Acquiring a non-profitable entity may impose a financial burden on the acquiring company, especially if the acquired business continues to incur losses. This can affect the acquirer's cash flow, profitability, and overall financial stability.

Marketing Strategy & Sales Practices

Byju's sales practices have faced scrutiny for various reasons, including the perceived aggressiveness of its salesforce and issues related to course financing. Reports suggest instances of pushy sales tactics, with sales representatives promoting courses through loans without adequately informing customers about the financial implications. Notably, there have been cases where customers were unaware of the loan arrangements during their subscription, leading to concerns about transparency.

Furthermore, the financing structure, facilitated through a leaning partnership known as FLDP (First Loss and Default Guarantee), involved Byju's acting as a third party to a financing partner. The ease with which these loans were extended has raised questions about the due diligence and risk assessment involved in the financing process. The fallout from these practices has resulted in a tangible loss of reputation and trust for Byju's, highlighting the importance of transparent and ethical sales practices in the education technology industry.

Filing Delays

The company has encountered difficulties in adhering to timely financial disclosures, raising concerns among stakeholders and regulatory bodies. The delays in filing financials have implications for transparency and accountability, as investors and analysts rely on these reports to assess the company's financial health and make informed decisions.

Lessons Learned

1. Balancing Growth with Ethical Business Practices: Byju's has faced challenges related to sales practices and financing structures, emphasizing the need for ethical business conduct.
2. Financial Transparency: Maintain transparent financial reporting practices. Clear and accurate financial disclosure is crucial for building trust with investors and stakeholders.
3. Evaluate Expansion Strategies: Evaluate the impact of expansion strategies on the company's financials. Rapid expansion or acquisitions can sometimes lead to initial challenges

and few more great points..

Credits to Think School's YT video: https://youtu.be/s8NWNIGObjU?feature=shared&t=235

Disclaimer: This article is meant to be an educational lesson, not to be taken as true source of numbers/figures.