Udemy Outperforms Expectations While Leading the Transformation to a Skills-Based Economy

Udemy once again delivered results that exceeded our expectations for both revenue and adjusted EBITDA. On a year-over-year basis, Udemy Business revenue increased 30%, while Consumer revenue increased 1%. We also raised our outlook, which now projects our first full year of positive adjusted EBITDA, well ahead of plan.

During the quarter, Udemy Business customers remained highly engaged with our platform, as demonstrated by the 14% year-over-year increase in logos and the 114% Large Customer Net Dollar Retention Rate. We added new or expanded existing relationships with global customers including Assurant, Deutsche Telekom, Schlumberger, Shell and Walmart Chile, to name a few. We closed many six-figure deals during the quarter, including three $1 million dollar plus deals, contributing to Udemy Business ARR growth of 26%year-over-year. Compared to the prior quarter, deal velocity improved, our win rates increased and we are seeing higher average enterprise plan contract values. We also achieved an exciting milestone with our Consumer subscription product, called Personal Plan , which surpassed more than 100,000 monthly and annual paid subscribers.

Given these results, we are very encouraged by the demand on both sides of our business. While it’s still too soon to call a bottom, we are seeing customers beginning to ease their budgetary constraints, although still below historic norms. As customers plan for 2024, it is clear that investments in upskilling and reskilling are a key focus. Our conversations with CLOs across the globe suggest that developing skills-based practices will be a top priority for the foreseeable future. This gives us confidence in the significant opportunity for long-term growth.

With that in mind, today I wanted to share some insights into:

1. What is driving the transformative shift that is reshaping companies’ approach to skills-based practices.
2. The strategic investments Udemy is making now in order to capitalize on this opportunity and drive long-term profitable growth.

Let’s start with the market trends. The current environment is characterized by an accelerated pace of innovation, driven by digital transformation, the emergence of generative AI and the widespread adoption of hybrid work. These profound forces are reshaping the way we work and redefining the skills needed to drive future growth and success.

A study from McKinsey underscored the urgency of this situation, revealing that 87% of executives are already identifying skills gaps within their organizations. In addition, the World Economic Forum found that 60% of all workers will need retraining before 2027 as skills rapidly evolve or become obsolete due to automation. It is abundantly clear that we are in the early innings of a dramatic global transformation - one that businesses must fully embrace to enhance productivity, foster innovation and create sustainable value. This new reality demands the immediate and ongoing attention of all organizations and workers.

Many forward-thinking companies are already responding to this challenge by recognizing skills as the new currency within their organizations. Global enterprises such as IBM, Bank of America, Kellogg's and Walmart, as well as multiple U.S. state governments, are leading the way by prioritizing skills proficiency, including implementing credentialing programs and easing degree requirements for certain roles.

Having a clear skills-based transformation strategy is critical for companies' future success. It ensures talent decisions are based on what workers are actually capable of achieving. A study by Deloitte reinforces this, revealing that organizations embracing skills-first practices are 107% more likely to place talent effectively, 52% more likely to foster innovation and 57% more adept at anticipating and navigating change.

We firmly believe that companies aiming to stay ahead of the pace of change must invest in talent mobility to support career growth and the attraction and retention of top-tier talent. In today's world, people are as vital as technology in creating sustainable differentiation.

For example, a prominent global airline partnered with Udemy Business this quarter to enhance the digital skills of its employees. The company chose Udemy as its learning partner to increase digital literacy, improve productivity, bridge skills gaps and retain talented staff. Udemy Business was chosen over an incumbent because of our demonstrated ability to develop and implement a skilling strategy, breadth of skills content and skills validation capabilities.

Layering on to that, AI continues to reshape industries across all geographies. Organizations and professionals must understand how generative AI will impact individual roles and how it can be integrated into transformation strategies to foster agility, resilience and competitiveness.

During the quarter, a large global pharmaceutical company doubled its seat count with us in a multi-year expansion deal to address the full extent of the AI opportunity. The CEO set a mandate for upskilling the entire workforce on this technology in order to increase the speed to market for its pipeline of drug candidates, drive efficiencies throughout the entire company and protect its data with enhanced compliance. Udemy is supporting our customer’s efforts to achieve these critical business objectives by providing its employees access to relevant AI content, curated learning paths and certifications.

The demand for generative AI-related content on the Udemy platform is remarkable. Currently, we offer an extensive selection of over 1,500 courses, which have collectively garnered more than 2.5 million learner enrollments. The organic creation of content in response to demand reaffirms the effectiveness of our marketplace model, which seamlessly adapts to evolving technology and learner needs. It's important to note that as technology continues to advance and new demands arise, our platform organically fosters the creation of fresh, relevant content. generative AI is a prime example of this dynamic process. Looking ahead, with further technological advancements on the horizon, we are confident in Udemy's ability to lead by providing relevant, high-quality content that will continue to attract a growing number of learners and customers.

As demand for creating skills and digital transformation strategies increases, we will align our own strategy, as well as our investments in product innovation, brand and go-to-market to capture that demand.

Heading into the new year, you can expect to hear more about our investments and new campaigns that we believe have the potential to dramatically increase Udemy brand awareness globally. As part of those efforts, we plan to bolster our go-to-market engine and lean into strategic partnerships that extend our reach more rapidly and into new markets. We recently announced a partnership with Docker , a leading provider of development tools, and have more exciting collaborations with technology leaders to announce over the next few months. These partnerships will allow us to expand and introduce Udemy to millions of new learners. For example, we are already seeing significant traction with our AWS partnership. During Q3, Total Contract Values of bookings through AWS increased 214% quarter-over-quarter and we grew the number of deals transacted by more than 5x year-over-year. Over time, we anticipate our strategic partnerships will become even more impactful.

In addition, we remain bullish on the opportunities that generative AI brings to our business and have built a robust product roadmap that will supercharge the Udemy experience. We are building highly relevant generative AI enabled capabilities for three distinct personas: our enterprise customers, learners and instructors.

In response to the evolving needs of our enterprise customers, Udemy is committed to delivering tailored solutions. With industries undergoing rapid transformations, organizations are turning to Udemy to address their specific upskilling requirements. To serve them better, we are developing a cutting-edge, generative AI-powered Skills Mapping system. This innovative solution, when integrated with our extensive course catalog of more than 210,000 courses, positions us at the forefront of addressing each customer’s precise skill demands. Leveraging generative AI, we will automate the creation of personalized learning paths and guidance, ensuring that every professional skills development need is met.

For learners, we are focused on enhancing the experience on our platform. We are harnessing the power of generative AI to guide learners directly to content that aligns precisely with their unique needs to optimize their personalized experience. For example, we recently introduced smart search capabilities that enable learners to access “bite-sized” micro-learning opportunities within our vast course catalog. This not only streamlines the experience, but it also enhances engagement and optimizes time spent on our platform.

Finally, we are committed to empowering instructors with tools that supercharge their ability to create high-quality content more efficiently and effectively. Instructors often spend substantial time responding to learner inquiries, with some even hiring Teaching Assistants. We will leverage AI to automate responses for learner questions, saving instructors valuable time. Learners too will benefit from a more responsive and engaging experience. Instructors also dedicate significant time developing practice tests and quizzes. We will apply generative AI to automatically create interactive materials for instructors. These enhancements will be applicable to all new and existing courses and will be available to all 75,000 Udemy instructors. The synergy between generative AI, coupled with the depth and breadth of Udemy's content, will further enable us to deliver learning and skills development solutions to the market at scale.

Additionally, our commitment to innovation extends beyond our customer offerings. We are actively leveraging the power of AI to transform our internal operations, ultimately enhancing the service we provide to our valued customers. Our recent investment in cutting-edge technology is leading to the launch of a generative AI-powered chatbot that can efficiently handle over 70% of our incoming requests, streamlining our support process and providing quicker resolutions for our customers. In tandem with this development, we are equally committed to upskilling our Customer Support teams, underscoring our dedication to becoming a premier center for generative AI support.

In conclusion, we are committed to helping individuals and organizations navigate this exciting period of rapid change. Udemy is prioritizing skills, embracing the potential of AI, adapting to the hybrid future of work, and fostering a culture of agility and resilience. These strategic pillars will guide us as we continue to lead the transformation to a skills-based economy and innovate in this ever-evolving landscape.

This LinkedIn article is adapted from my remarks to Udemy shareholders on November 2, 2023 and represents our views as of this date. For more details regarding Udemy’s results for Q3 2023, including our earnings news release and archived webcast, visit the “Quarterly Results ” section of Udemy’s Investor Relations website.

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