Changing Course at Coursera (COUR)

Some Quick Notes on a CEO Change Situation

“You can work long, hard, or smart, but at Amazon you can’t choose 2 out of 3”

Jeff Bezos

Hello OpTrackers,

This is going to be a first of a new style of post for me, which is a really short note on a fast moving situation that I don’t fully have my arms around yet. I hope this style of post will encourage me to post more frequently going forward and also incentivize me to come back to you with follow ups as I know more.

The other thing that would help encourage me to do so is more subscribers, so please smash the share and subscribe buttons below!

Quick Situation Summary

As the title gives away, I find the recent developments at Coursera (ticker: COUR) to be particularly interesting. Coursera is an ed-tech business, which is an end-market I frankly don’t really love, but isn’t so terrible that it’s an automatic no-go.

Coursera has about a $1.3bn market cap with $725mm of net cash, so a little over 50% of the market cap is covered by cash. It also has $700mm of revenue and thus trades for <1x Revenue. And while it doesn’t have best in class software margins it is still a ~50% gross margin business (implying it trades for <2x gross profit), so you would think it should be able to make some money.

And while growth has slowed to high-single-digits, it is still growing! Cash flow is really lumpy and I won’t pretend to know today what normalized cash flow is but it seems pretty apparent that normalized cash flow isn’t to burn boatloads of cash (though I will admit share-based dilution is pretty bad and needs to be addressed).

Why Is This Worth Mentioning?

The entire reason this is worth mentioning is this press release. I encourage you to read it in full.

In short, Greg Hart is becoming CEO of Coursera. Greg spent 23 years at Amazon and for a good chunk of that he reported directly to Jeff Bezos. My working hypothesis is that anyone who can survive multiple years reporting directly to Jeff Bezos must be an exceptional person. Now, to be candid, the skeptical side of this is that he apparently did a bunch of work on Echo/Alexa and that isn’t exactly a bastion of Amazon’s success.

He then went to COMP which has not be a wild success as a public company, but it’s a big business and it IPO’d at the peak of 2021 and I am not sure there are many companies in that IPO cohort that have great ITD stock charts through today just given the starting point. I need to do some more digging/references on Greg from his time at COMP but for now I inclined to give him the benefit of the doubt there.

So, anyway, that’s that. COUR is a dirt cheap stock with a less-than-terrible financial profile that announced they have a new CEO that I would be willing to bet is an exceptional talent. He’s never been a CEO before and his track record isn’t spotless, but the bar he has to clear is really, really low.

If you think long-term 50% of GP can convert to EBITDA and this trades like a middling software company at 15x EBITDA, you’re in 2-3x MOIC territory from today’s price of $8.15/share assuming no revenue growth and no gross profit improvement.

This is interesting enough to make me want to do more work on it and I will follow up with an updated view in the future. In the meantime, if any of you have a perspective on Greg/COUR and want to share or compare notes please feel free to reach out. Would love to discuss and happy to give you a shoutout in the update (or keep things entirely confidential if you’d prefer)!

Happy hunting!

Disclaimer: As always please remember nothing written in this blog should be considered investment advice. You should assume that even though we tried our best that this post is riddled with errors and do your own research/consult a licensed financial advisor before investing any of your own money into any financial security