According to the Zhitong Finance APP, Morgan Stanley's latest research report provides a comprehensive and in-depth analysis of the North American educational software industry, covering major companies such as Coursera (COUR.US), Chegg (CHGG.US), and Udemy (UDMY.US), offering key data, market performance, risk assessments, and future outlooks.
Among them, the star stock Chegg saw a year-on-year decline of 38% in website visits in January, marking 16 consecutive months of negative growth, with mobile downloads shrinking by 82% compared to pre-pandemic levels. Analysts have rarely set a target price of &#34;1.25 USD,&#34; implying a potential decline of over 60% from the current price, and warning of fundamental collapse risks in its financial model.
The report points out that the EdTech sector's web traffic and app download data face some challenges at the beginning of 2025. Although there was a slight improvement in web traffic and app download data in January 2025 compared to December 2024, the year-on-year (YoY) growth rate remains negative, reflecting certain pressures on consumer demand at the beginning of 2025.
<h2>Company Specific Performance</h2>
Coursera
It is understood that Coursera's web traffic data shows some signs of recovery. Although it still declined by 3% year-on-year, this figure has significantly improved compared to the -9% drop in December 2024 and the -10% drop in November 2024. This indicates that Coursera's website visits are gradually recovering, and user activity has improved, laying a good foundation for the company's future business growth.
In terms of app downloads, Coursera faces significant challenges. In January 2025, its four-week average of app downloads decreased by as much as 82% year-on-year. However, the weekly download trend reveals some positive signals, indicating signs of gradual improvement. This may suggest that, with adjustments in marketing strategies and a gradual recovery in user demand, Coursera's app download volume is expected to rebound in the coming months.
From a financial forecasting perspective, Coursera's development prospects show a certain degree of divergence. It is expected that in 2024, consumer revenue will reach 470 million USD, a year-on-year increase of 4%, indicating stable market demand and good user stickiness. At the same time, corporate revenue is expected to reach 571 million USD, a year-on-year increase of up to 10%, reflecting the company's strong growth momentum in the corporate services sector. However, the long-term forecast for 2034 appears relatively pessimistic, with consumer revenue expected to drop to 415 million USD and corporate revenue declining to 337 million USD. This suggests to investors that, although the company's performance is stable in the short term, its long-term growth potential may face certain challenges.
Looking ahead, Coursera faces numerous opportunities as well as potential risks. On one hand, the increase in new university partnerships and degree programs will provide the company with more high-quality educational resources, attracting more students to join. At the same time, the expansion of corporate accounts and the rapid launch of degree programs will also help enhance the company's market competitiveness and profit margins. On the other hand, significant declines in demand post-pandemic, intensified competition in the corporate sector, and increased difficulty in enrolling students in degree programs may pose threats to the company's business growth
Therefore, Coursera needs to closely monitor market dynamics and flexibly adjust its strategic direction to ensure it remains undefeated in the fierce market competition.
Chegg
Chegg's web traffic data reveals the challenges it currently faces. Compared to the same period last year, Chegg's web traffic has decreased by 38%, worsening from -34% in December 2024 and -37% in November 2024, indicating a continued downward trend in user visits. At the same time, the app download situation is also concerning. In January 2025, the four-week average of Chegg app downloads decreased by 82% year-on-year, with weekly downloads continuing to decline, further intensifying the company's market pressure.
In terms of financial forecasts, Chegg also faces severe challenges. It is expected that in 2024, its service subscription revenue will decline by 11.4%, and this decline will further expand to 17.9% in 2025. Additionally, the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin is expected to significantly drop from 31.1% in 2023 to 14.4% in 2026, indicating that the company's profitability is being severely eroded.
It is worth mentioning that Morgan Stanley has also carefully constructed a &#34;triple scenario model&#34; for Chegg's future development prospects, which includes bear market, baseline, and bull market scenarios, aiming to comprehensively examine the challenges and opportunities Chegg may face from different angles.
In the bear market scenario, Morgan Stanley predicts a more pessimistic outlook. If Chegg's subscription user annual decline expands to 16%, its revenue situation will suffer a heavy blow. Specifically, by 2029, Chegg's revenue is expected to shrink to $197 million, while EBITDA will also turn negative. This prediction highlights the severe impact of accelerated user loss on the company's financial condition and the market's concerns about its future development.
Turning to the baseline scenario, Morgan Stanley assumes that Chegg's current deterioration trend will continue but will not worsen further. In this scenario, Chegg's free cash flow is expected to drop to $42 million by 2029. Although this figure represents a decline compared to historical levels, it still maintains positive cash flow, indicating that the company retains some resilience in the face of challenges. Additionally, the valuation in this scenario corresponds to 6 times the forward free cash flow, reflecting some market recognition of the company's long-term value.
However, in the bull market scenario, Morgan Stanley depicts a more optimistic picture. If Chegg can successfully slow down the rate of user loss and stabilize ARPU (Average Revenue Per User), its stock price is expected to reach $3.25. This prediction is based on a series of positive assumptions, including the company's ability to effectively respond to market competition, enhance user experience, and expand into new business areas. However, analysts also remind investors that despite the allure of the bull market scenario, the trend of &#34;generative AI's irreversible substitution of content platforms&#34; cannot be ignored, which will pose long-term challenges to online education platforms like Chegg
Despite facing numerous challenges, Chegg still possesses its unique advantages and opportunities. As a well-known brand in the industry, Chegg has a solid position in the market, and its AI technology can effectively attract student users, providing strong support for the company's long-term development. However, with the increasing competition in generative AI, Chegg needs to continuously innovate to maintain its competitive edge. At the same time, issues such as slowing domestic growth and limited international expansion may also impact its business. Therefore, Chegg needs to closely monitor market dynamics and flexibly adjust its strategic direction to respond to the ever-changing market environment, ensuring the company's long-term stable development.
Udemy
Udemy's web traffic data shows some volatility, but the overall trend is positive. Compared to the same period last year, Udemy's web traffic has decreased by 8%. Although this decline seems significant, it shows clear signs of improvement compared to the -1% decline in December 2024 and the 12% growth rate in November 2024. This indicates that Udemy's website visits are gradually recovering, and user activity has increased.
In terms of business segmentation, Udemy's consumer and enterprise businesses face different challenges. The year-on-year decline trend in the consumer business continues, reflecting market demand uncertainty and changes in user preferences. Meanwhile, although the web traffic of the enterprise business has increased year-on-year, the growth rate has also slowed, which may be related to intensified market competition and fluctuations in enterprise users' demand for online training. Nevertheless, Udemy is still striving to balance these two major business segments to achieve comprehensive development.
From a financial forecasting perspective, Udemy's development prospects remain full of challenges and opportunities. It is expected that in 2024, consumer revenue will decline by 6.1%, which may be related to the current market environment and uncertainty in consumer demand. However, enterprise revenue is expected to grow by 16.8%, demonstrating Udemy's strong competitiveness in the corporate training market. By 2034, consumer revenue is expected to reach $214 million, although the growth compared to the current level is limited, enterprise revenue is expected to see a significant increase, reaching $815 million. This indicates that Udemy has enormous long-term development potential in the corporate training field.
Looking ahead, Udemy faces numerous risks but also possesses its unique advantages. On one hand, factors such as uncertainty in consumer demand, limitations on enterprise business expansion, and currency risks may impact its future development. On the other hand, Udemy's unique two-sided market model and differentiated content are its core competitive strengths, which help the company stand out in fierce market competition. Therefore, Udemy needs to closely monitor market dynamics and flexibly adjust its strategic direction to fully leverage its unique advantages, respond to potential risks, and achieve sustainable development.
<h2>Investment Ratings and Target Prices</h2>
Morgan Stanley conducted an in-depth assessment of the three leading companies in the online education industry—Coursera, Chegg, and Udemy—and provided corresponding investment ratings and target prices
For Coursera, Morgan Stanley has given an &#34;Overweight&#34; rating and set a target price of $10. This rating is primarily based on Coursera's leadership position in the online education platform sector and its demonstrated potential for future growth. Morgan Stanley believes that Coursera, with its strong brand influence, rich course resources, and partnerships with many renowned universities worldwide, will continue to attract a large number of learners and achieve long-term growth. Therefore, investors may consider increasing their holdings in Coursera's stock to share in its growth benefits.
In contrast, Morgan Stanley's rating for Chegg is more cautious, giving it a &#34;Underweight&#34; rating and setting a target price of $1.25. This decision mainly reflects the challenges Chegg currently faces, including a continued decline in web traffic and app downloads, as well as pressure from generative AI competition. Morgan Stanley believes that these factors may adversely affect Chegg's future development, and thus recommends that investors maintain a cautious attitude and avoid over-allocating to Chegg's stock.
For Udemy, Morgan Stanley also gives a &#34;Underweight&#34; rating and sets a target price of $7.50. Although Udemy's business model has certain uniqueness that attracts a large number of independent instructors and learners, Morgan Stanley points out that the uncertainty of market demand and challenges in business expansion may negatively impact Udemy's short-term performance. Therefore, investors are advised to take a conservative view on Udemy's stock and wait for clearer market conditions before making decisions.
In summary, Morgan Stanley's investment ratings and target prices for Coursera, Chegg, and Udemy reflect its differing views on the future development prospects of these three online education companies. Investors should fully consider Morgan Stanley's assessment results when making investment decisions and combine them with their own risk tolerance and investment goals for comprehensive judgment.
<h2>Industry Alert: Generative AI is Reshaping the Landscape of EdTech</h2>
It is noteworthy that the rapid development of generative AI technology is having a profound impact on the EdTech industry, attracting widespread attention both within and outside the industry. Morgan Stanley emphasizes in its report that this technological innovation brings three structural risks that are rewriting the rules of the game.
First, technological disruption has become an undeniable threat. Tools like Google's AI Overviews can directly provide problem-solving ideas, significantly enhancing learning efficiency and directly siphoning traffic from traditional education platforms. For example, Chegg has seen a traffic decline of up to 38%, partly due to this. This trend indicates that generative AI is becoming a powerful competitor in the education sector, posing a severe challenge to traditional education platforms.
Second, business models are also facing severe impacts. The &#34;instructor-content-user&#34; flywheel model that online education platforms like Udemy have long relied on is being strongly challenged by AI content generation. As generative AI technology continues to advance, high-quality educational content will become increasingly accessible, which may reduce users' dependence on traditional education platforms and weaken the effectiveness of their business models
In addition, capital withdrawal has intensified the turmoil in the education technology industry. The net exposure of hedge funds to the education technology sector is only 12.6%, significantly lower than the average level of the SaaS industry. At the same time, the short-selling ratio continues to rise, indicating investors' pessimistic expectations for the future development of the education technology industry. This phenomenon of capital withdrawal will undoubtedly bring greater financial pressure and market uncertainty to companies within the industry.
From the perspective of institutional movements, Chegg has become a &#34;discard&#34; for institutions. 70% of analysts give it a &#34;hold&#34; rating, while 30% of analysts are outright bearish, with no institution indicating an increase in holdings. Additionally, the proportion of active institutional holdings has dropped from a peak of 70% to 54.8%, and the long-short ratio of hedge funds has reached 1.7 times, indicating a buildup of short-selling power. These data further confirm that the education technology industry is facing severe challenges, with investor sentiment generally pessimistic.
<h2>Conclusion and Outlook</h2>
The education software industry faces certain challenges at the beginning of 2025, with declining consumer demand and intensified market competition affecting companies to varying degrees.
Coursera shows a certain improvement trend in web traffic and app downloads, and is expected to expand its enterprise business and degree programs based on its consumer platform.
Chegg, on the other hand, faces significant pressure, with its web traffic and app download data continuing to deteriorate, needing to address challenges such as competition from generative AI.
Although Udemy has a unique market model, it also needs to cope with uncertainties in consumer demand and limitations in business expansion.
Investors considering investing in the education software industry should fully assess the risks and opportunities of each company, making informed decisions based on market trends and company fundamentals. In the future, with continuous technological advancements and market changes, the education software industry is expected to usher in new development opportunities, but companies also need to continuously innovate and adjust strategies to meet challenges

COUR

CHGG

Morgan Stanley's research report analyzes the North American educational software industry, focusing on Coursera, Chegg, and Udemy. The report points out that Chegg's website traffic plummeted by 38% year-on-year, warning that its financial model is at risk of collapse. In contrast, Coursera's traffic has rebounded slightly, with a year-on-year decline of 3%, but downloads still face challenges, with a decrease of up to 82%. Overall, the edtech sector is facing consumer demand pressure at the beginning of 2025

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Coursera

Chegg

Udemy

Alphabet - C

Morgan Stanley

Alphabet

Morgan Stanley analyzes the education software industry: Chegg's traffic plummets, Coursera sees a rebound, and generative AI reshapes the edtech landscape?