10-Q: Udemy Swings to Profit Amid Strong Enterprise Growth

Udemy, Inc. reported a significant financial turnaround, achieving net income and improved cash flow for Q2 2025, driven by strong Enterprise segment growth and operational efficiencies.

Summary

• Revenue for the three months ended June 30, 2025, increased by 3% to $199.9 million, compared to $194.4 million in the prior year period.
• Net income for Q2 2025 was $6.3 million, a substantial improvement from a net loss of $31.8 million in Q2 2024.
• Adjusted EBITDA for Q2 2025 significantly improved to $28.4 million, up from $5.5 million in Q2 2024, with adjusted EBITDA margin reaching 14% from 3%.
• Free cash flow for Q2 2025 increased to $39.0 million, up from $24.8 million in Q2 2024.
• The Enterprise segment revenue grew by 7% to $129.3 million in Q2 2025, now representing 65% of total revenue, up from 62% in Q2 2024.
• Consumer segment revenue decreased by 4% to $70.6 million in Q2 2025, primarily due to a decline in single course purchases, partially offset by consumer subscription growth and $2.6 million in breakage revenue from Udemy credits.
• Overall gross margin improved to 66% in Q2 2025 from 62% in Q2 2024, primarily due to a reduction in instructor revenue share for subscription offerings (from 20% to 17.5% effective January 1, 2025) and the favorable revenue mix shift towards the Enterprise segment.
• Operating expenses decreased by 13% to $128.1 million in Q2 2025, driven by reductions in sales and marketing (-8%), research and development (-19%), and general and administrative (-20%) expenses, reflecting operational efficiency initiatives.
• Udemy Business Annual Recurring Revenue (ARR) increased by 6% to $520.0 million as of June 30, 2025.
• Udemy Business Net Dollar Retention Rate (NDRR) was 95% as of June 30, 2025, down from 101% in the prior year, with UB Large Customer NDRR at 99% (down from 108%).
• Monthly average buyers decreased by 3% to 1.241 million in Q2 2025 compared to 1.286 million in Q2 2024.

Sentiment

Score: 7

Explanation: The company demonstrated a strong financial turnaround, moving from significant losses to profitability and generating substantial free cash flow, driven by effective cost management and growth in its higher-margin Enterprise segment. While there are concerns regarding declining net dollar retention rates and a shrinking consumer buyer base, the overall financial health and strategic focus on enterprise and AI integration present a positive outlook.

Positives

• Achieved net income of $6.3 million in Q2 2025, a significant turnaround from a net loss of $31.8 million in Q2 2024.
• Adjusted EBITDA increased substantially to $28.4 million in Q2 2025, demonstrating improved operational profitability.
• Free cash flow rose to $39.0 million in Q2 2025, indicating strong cash generation from operations.
• Enterprise segment revenue grew by 7%, becoming a larger portion of total revenue (65%), which is beneficial for overall margins.
• Gross margin improved to 66% due to favorable revenue mix shift and reduced instructor revenue share.
• Operating expenses decreased across all categories (Sales & Marketing, R&D, G&A), reflecting successful operational efficiency initiatives.
• Recognized $2.6 million in breakage revenue from Udemy credits, with $2.5 million related to previously satisfied performance obligations.
• Established a new $200.0 million revolving credit facility, enhancing liquidity and financial flexibility.

Negatives

• Consumer segment revenue decreased by 4% in Q2 2025, primarily due to lower single course purchases.
• Udemy Business Net Dollar Retention Rate (NDRR) declined to 95% from 101%, indicating churn outpaced expansion across all existing UB customers.
• Udemy Business Large Customer NDRR also decreased to 99% from 108%, showing lower net retention among larger clients.
• Monthly average buyers decreased by 3%, suggesting a decline in new individual learner acquisition or retention.
• Incurred restructuring charges of $0.1 million in Q2 2025 and $1.6 million for the six months ended June 30, 2025.

Risks

• History of losses and uncertainty in sustaining future profitability.
• Operating in an emerging and dynamic market makes future results difficult to predict.
• Results of operations may fluctuate significantly due to various factors outside of control.
• Growth sustainability depends on attracting and retaining new and existing learners, instructors, and organizations.
• Reliance on a limited number of instructors for popular content; loss of these relationships could adversely affect the business.
• Failure to maintain and expand relationships with Udemy Business (UB) customers could hinder business and revenue growth.
• Operates in a highly competitive market, potentially impacting ability to compete successfully.
• Revolving credit facility contains financial covenants that may limit operating flexibility.
• The market for online learning solutions may not grow as expected.
• Adherence to values and long-term sustainability focus may negatively impact shortor medium-term financial performance.
• Failure to effectively leverage strategic partnerships for marketing and sales.
• Risks inherent in international operations, including foreign currency fluctuations and compliance with diverse laws.
• Inability to adequately obtain, maintain, protect, and enforce intellectual property and proprietary information.
• Potential liability or reputational harm from courses posted to the platform, including intellectual property infringement claims.
• Cybersecurity attacks or other security breaches could delay service, harm reputation, or lead to significant liability.
• Challenges in successfully deploying AI, machine learning, and other evolving technologies.
• Interruptions or performance problems with technology and infrastructure.
• Reliance on Amazon Web Services for a substantial portion of platform services.
• Dependence on third-party payment providers and evolving payment laws/regulations.
• Adverse effects if mobile apps are not effective.
• Decline in growth rate if the company fails to appear prominently in internet search results.
• Unanticipated changes in effective tax rate and additional tax liabilities, including from international operations or new tax rules.
• Limitations on the ability to use net operating loss carryforwards and certain other tax attributes.
• Adverse impact from the effects of inflation on operating costs and pricing.
• Reported financial results may be adversely affected by changes in generally accepted accounting principles.
• Volatility in the trading price of common stock, potentially leading to loss of investment.
• Future sales of common stock could depress the market price.
• Future issuances of common stock or rights could result in additional dilution.
• Lack of dividends in the foreseeable future.
• Significant control exerted by directors, executive officers, and principal stockholders.
• Delaware law and corporate provisions might delay, discourage, or prevent mergers or tender offers.
• Exclusive forum provisions in bylaws could limit stockholders' ability to choose judicial forum for disputes.

Future Outlook

The company anticipates operating expenses will generally decrease as a percentage of revenue over time due to a focus on operational efficiency and high-growth opportunities, including investments in generative AI. It expects revenue from the Enterprise segment to continue growing faster than the Consumer segment, which should benefit overall margins. Free cash flow is expected to generally increase in the near term due to operational efficiency initiatives. The company plans to continue investing in platform growth and development, and may seek additional capital if needed.

Management Comments

• Our mission is to transform lives through learning.
• Technological advancements, such as generative artificial intelligence (AI), have significantly altered the types of skills required of workers across nearly every industry and role, and lifelong training and continuous skills acquisition are becoming the norm.
• Udemy's AI-powered skills acceleration platform empowers organizations and individuals with effective skill acquisition and development through various modalities.
• Advancements in AI are fundamentally transforming our learning platform capabilities beyond traditional linear video instruction, enabling Udemy to deliver more personalized, efficient, and measurable skill development experiences.
• Our AI investments power sophisticated skills assessment technology that evaluates a learner's existing competencies and automatically generates customized learning paths tailored to individual development needs.
• We are prioritizing resources for high-growth opportunities through expanding and deepening our opportunities with larger enterprise customers, further penetrating our existing customer base, and pursuing strategic partnerships and acquisitions.
• We anticipate our operating expenses will generally decrease as a percentage of revenue over time.
• We expect our free cash flow to generally increase in the near term due to our operational efficiency initiatives.

Industry Context

The online learning market is rapidly evolving, with increasing demand for cloud-based skill development solutions, particularly integrated enterprise-grade platforms. The company is leveraging advancements in generative AI to enhance its platform, offering personalized learning paths and high-engagement modalities like interactive simulations. This positions the company to capitalize on the shift from traditional training models to continuous, skills-based learning, although competition from existing players and new entrants incorporating AI remains a key factor.

Management Changes

Corporate Governance

Legal Proceedings

• A putative class action complaint, Mohamed Saleh v. Udemy, Inc., was filed on December 12, 2022, alleging violations of the Video Privacy Protection Act (VPPA) for sharing personally identifiable information about viewing history with an advertiser. A motion to compel arbitration was granted on August 30, 2023, and the matter was stayed and administratively terminated pending individual arbitration on March 21, 2024.
• Several law firms have threatened to file individual arbitration demands on behalf of approximately 20,000 purported Udemy learners, claiming similar violations under the VPPA and/or California state privacy laws. Substantially all of these claims have been resolved for an immaterial amount.
• The company's subsidiary, Udemy India LLP, has received tax assessments from the India Income Tax Department challenging transfer pricing methodology for fiscal years ended March 31, 2022, and 2021. The company believes the proposed adjustments are without merit and intends to vigorously defend its position.

Related Party Transactions

• Naspers Ltd. and its affiliates, a beneficial owner of more than 5% of outstanding capital stock, generated $0.5 million in revenue for Q2 2025 and $0.9 million for the six months ended June 30, 2025. As of June 30, 2025, $0.1 million was in accounts receivable.
• Insight Partners, where a Board member is a Managing Director, and its affiliates generated $0.1 million in revenue for Q2 2025 and $0.2 million for the six months ended June 30, 2025. Expenses recognized from Insight Partners and affiliates were $0.3 million for Q2 2025 and $0.5 million for the six months ended June 30, 2025. As of June 30, 2025, $0.1 million was in accounts receivable and an immaterial amount in accounts payable.
• Companies affiliated with Board members generated immaterial revenue for Q2 2025 and the six months ended June 30, 2025. As of June 30, 2025, $0.1 million was in accounts receivable.

Stakeholder Impact

• Shareholders: Positive impact from the swing to net income, improved EBITDA, and free cash flow, potentially increasing investor confidence. However, declining NDRR and monthly average buyers could be a concern for long-term growth prospects.
• Employees: Impacted by the 2024 restructuring plan, which involved workforce reductions and associated severance costs. New CEO appointment and equity awards for executives may affect morale and compensation structures.
• Customers (Enterprise): Continued growth in the Enterprise segment indicates strong value proposition and adoption, but lower NDRR suggests challenges in expanding or retaining existing customers at previous rates.
• Customers (Consumer): Decreased revenue and monthly average buyers indicate challenges in the consumer market, potentially impacting individual learners' access or engagement.
• Instructors: Reduction in instructor revenue share (from 20% to 17.5%) could impact instructor compensation and potentially influence content creation incentives or retention, although it benefits the company's gross margins.
• Creditors: The establishment of a new $200 million revolving credit facility improves the company's liquidity and financial stability, benefiting creditors.

Next Steps

• Continue investing in the growth and development of the platform, including generative AI capabilities.
• Focus on expanding and deepening opportunities with larger enterprise customers.
• Further penetrate the existing customer base.
• Pursue strategic partnerships and acquisitions.
• Monitor and manage the impact of the 17.5% instructor revenue share on content quality and instructor retention.
• Assess the potential impact of the One Big Beautiful Bill Act (OBBB Act) on condensed consolidated financial statements.
• Continue to monitor and defend against tax assessments from the India Income Tax Department regarding transfer pricing methodology.

Key Dates

Recommendation

The company's significant financial turnaround from a substantial net loss to net income, coupled with strong improvements in Adjusted EBITDA and Free Cash Flow, indicates effective operational efficiency and a positive trajectory. The growth in the higher-margin Enterprise segment is a key driver. While the decline in Net Dollar Retention Rate and monthly average buyers in the Consumer segment are areas to monitor, the overall financial health improvement and strategic focus on AI and enterprise expansion suggest a compelling investment opportunity for a seasoned investor or institution looking for a company demonstrating a successful pivot towards profitability and sustainable cash generation.

Keywords

Online Learning, EdTech, Corporate Training, Skills Development, SaaS, Enterprise Learning, Consumer Education, AI in Education, SEC Filing, Financial Results, Q2 2025, Udemy Business, EBITDA, Cash Flow