Nondegree providers face high costs, challenges standing out in a crowded space, report finds

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Dive Brief:

• Companies offering nondegree credentials face a deeply competitive market and barriers to growth, like big losses and expensive marketing, according to a new report from Eduventures, a higher education research and consulting firm.
• The report studied three of the largest publicly traded companies in the sector — Coursera, Udemy and 2U, owner of edX. They all reported nondegree revenue growth that outpaced revenue growth in the broader higher ed sector.
• But their nondegree revenue over the last 12 months was still less than 1% of tuition and fee revenue generated by public and private nonprofit colleges. The companies also reported significant losses, and the loss ratio at Coursera and Udemy is growing, the report finds.

Dive Insight:

The nondegree space has been invigorated by online learning platforms buoyed by the pandemic and an increase in partnerships with notable colleges, as well as an influx of private capital, the report says.

But nondegree enrollment still lags far behind enrollment in degree-granting programs. The report argues that analyzing Coursera, Udemy and 2U can provide insight into the broader higher ed market.

Private providers face the challenges of enrolling fewer students and earning less revenue per student than traditional four-year colleges. Four-year private institutions earn $15,911 per student per year, while four-year public colleges earn $6,807, according to the report. In comparison, 2U earns $1,413 and Coursera earns $498 per learner. Udemy came in with the lowest ratio, at $77 in revenue per student.

The companies also dedicated an extremely high percentage of their budgets to marketing in order to stand out in a saturated field. Through the third quarter of 2022, Udemy’s marketing spending amounted to almost half — 49% — of its revenue. 2U and Coursera spent 47% and 43% on marketing, respectively, over the same period.

The combination of low revenue per student and expensive marketing could help explain the trio’s significant losses, the report says. And their loss ratios — calculations comparing their losses to revenue gains — are rising.

In the third quarter of 2022, Udemy’s average loss ratio skyrocketed to 29%, up from 7% year over year, the report finds. At Coursera, the average loss ratio grew to an average of 34% during the last three quarters of 2022 from 29% the same period a year prior.

Comparing 2U’s losses and gains is less straightforward. The company’s purchase of edX raised its 2022 first-quarter loss ratio to 116% — up from an average of 36% over the previous year. Following that acquisition, 2U reduced its marketing and real estate costs and made significant cuts to its workforce. Its loss ratio quickly fell to 53% in the second quarter before dropping down to 13% in quarter three.

2U isn’t the only company looking at cost-cutting measures. Udemy recently laid off 10% of its international workforce.

There’s still room for expansion in such a high-cost, competitive market, though — especially in selling nondegree programming to businesses, the report says. While business-to-customer nondegree enrollment slowed, business-to-business enrollment is gaining share. And business leaders are interested in cost-efficient ways to address knowledge gaps caused by labor shortages and employee attrition, according to the report.

Recent survey data backs that up — nearly three-fourths of employers said alternative credentials have helped their organization fill skills gaps.