Udemy, Inc. (UDMY) Q2 2025 Earnings Call Transcript

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Overview

The earnings call highlights significant improvements in financial performance, including a shift to positive GAAP net income and strong cash flow. The introduction of Udemy 2.0 and AI integration has been well received, contributing to pipeline growth and improved win rates. While there are some renewal headwinds and macroeconomic challenges, the company's strategic initiatives and partnerships are expected to drive growth. The positive reception of new AI packages and the focus on operational efficiency further bolster the outlook. Given the market cap, these factors suggest a positive stock price movement in the near term.

Key Financial Performance

Q2 2025 Revenue $200 million, up 3% year-over-year. The increase was driven by growth in the Udemy Business segment and subscription-based revenue.

Udemy Business Revenue $129 million, a 7% increase year-over-year. Growth was driven by an increase in total customers and average contract value for new customers, partially offset by lower expansions and higher churn in the SMB cohort.

Udemy Business ARR $520 million, representing 6% year-over-year growth. Growth was driven by an increase in total customers and average contract value for new customers, partially offset by lower expansions and higher churn in the SMB cohort.

Consumer Segment Revenue $71 million, down 4% year-over-year. The decline was attributed to a negative 2 percentage point impact from FX and a one-time benefit of $2.5 million from consumer breakage revenue.

Gross Margin 67%, improved by 300 basis points year-over-year. The improvement was driven by a focus on growing subscription products and revenue share adjustments.

Operating Expenses $112 million or 56% of revenue, an 800 basis point improvement compared to Q2 2024. This reflects a focus on operational efficiency.

GAAP Net Income $6 million, a significant improvement from a loss of $32 million in Q2 2024. This milestone was achieved through disciplined cost management and operational efficiency.

Adjusted EBITDA $28 million or 14% of revenue, representing an 1,100 basis point year-over-year expansion. This marks the 14th consecutive quarter of exceeding expectations on the bottom line.

Free Cash Flow $39 million or 20% of revenue. This reflects strong cash generation and operational efficiency.

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Operating Highlights

AI-powered roleplay: Launched in May, allowing professionals to practice skills with an AI coach. Over 7,000 unique roleplays created by instructors.

AI assistant: In-course AI assistant helps learners navigate content and deepen understanding. Early data shows increased engagement and retention.

AI readiness and growth packages: New SKUs for enterprise customers to build AI fluency across organizations. Examples include partnerships with global medical technology companies and Devoteam.

Global market activation: Targeted campaigns and localized content strategies launched in Brazil, India, and Japan. Japan saw double-digit ARR growth and highest gross retention in 3 years.

Partnership ecosystem expansion: Strategic partnerships with Indeed, UKG, and BCN Global to extend reach and impact. Examples include integration with career marketplaces and workforce management solutions.

Subscription emphasis: 70% of revenue now subscription-based. Consumer subscription revenue grew to 15% of the Consumer segment, with plans to grow subscribers to 250,000 by year-end.

Operational efficiency: Achieved positive GAAP net income for the first time since IPO. Adjusted EBITDA exceeded expectations, with a 14% margin.

AI-powered skill acceleration platform: Positioning Udemy as a leader in AI-powered skill development. Differentiating from competitors with a focus on personalized AI tools and a dynamic marketplace.

Instructor-powered marketplace: Leveraging 85,000 instructors to create fresh, in-demand content, particularly in fast-moving areas like AI.

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Risk or Challenges

Revenue Growth: Revenue growth in the Udemy Business segment is slowing, with only a 7% year-over-year increase, and consumer revenue is expected to decline by 8% year-over-year for the full year 2025. This indicates challenges in maintaining growth momentum.

Customer Retention: Net dollar retention rate is at 95%, with large customers at 99%. However, there are challenges in renewing contracts from the COVID cohort, which were established without robust implementation and value metrics, leading to potential churn risks.

SMB Churn: Higher churn is observed in the SMB cohort, which is partially offsetting growth in ARR from large customers. This indicates a vulnerability in retaining smaller business customers.

Market Softness in Japan: The Japanese market, Udemy's second largest, has shown softness, requiring a new GM and refined go-to-market strategies to address the issue. While improvements are noted, this remains a risk area.

Economic Uncertainty: Economic uncertainties and FX headwinds are impacting revenue growth, particularly in the Consumer segment, which saw a 4% year-over-year decline.

AI Competition: While Udemy is positioning itself as an AI-powered skill acceleration platform, the rapid pace of AI adoption and competition from other platforms pose a strategic execution risk.

Operational Efficiency: While operational efficiency has improved, the need for targeted investments in AI and other growth areas could strain resources and impact profitability if not managed carefully.

SMB Renewals Outsourcing: Outsourcing SMB renewals to a third-party firm could lead to risks in maintaining customer relationships and ensuring consistent service quality.

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Guidance & Outlook

Revenue Projections: For Q3 2025, revenue is expected to be between $190 million and $195 million. For full year 2025, revenue is projected to be in the range of $784 million to $794 million, with Udemy Business revenue increasing approximately 5% year-over-year and Consumer revenue declining approximately 8% year-over-year.

Adjusted EBITDA: For Q3 2025, adjusted EBITDA is expected to be between $18 million and $20 million, approximately 10% of revenue. For full year 2025, adjusted EBITDA is projected to be between $84 million and $89 million, approximately 11% of revenue at the midpoint.

Subscription Growth: Udemy plans to grow consumer subscriptions to more than 250,000 by year-end 2025 and more than double that figure in 2026. Subscription GMV growth is tracking towards 50% year-over-year in July 2025.

AI Product Development: Udemy is launching AI-powered tools, including roleplay and in-course AI assistants, to enhance learning experiences. The company is also beta testing a model context protocol server for enterprise customers, aiming to embed personalized learning in AI-powered applications.

Market Activation and Regional Growth: Targeted campaigns and localized strategies in high-opportunity markets like Brazil, India, and Japan are expected to drive growth. Japan, in particular, has shown double-digit year-over-year ARR growth and the highest gross retention in over three years.

Partnership Ecosystem Expansion: Udemy is expanding partnerships, including collaborations with Indeed, UKG, and BCN Global, to extend its reach and impact. These partnerships aim to unlock further revenue growth and enhance enterprise learning management.

AI-Driven Demand and New SKUs: Udemy introduced AI readiness and AI growth packages to help organizations build AI fluency. Early traction is evident, with large enterprises adopting these packages for workforce upskilling.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What are Hugo Sarrazin's key observations from his first 4 months in the role?

A:Hugo Sarrazin spent time with over 300 customers and identified two key themes: AI reskilling is a global priority, and customers expect more from their learning partners, including ROI and AI integration. He introduced Udemy 2.0, focusing on expanding capabilities beyond content, building a technology-intensive platform, and embedding AI for personalized learning experiences.

Q:What is pressuring UB net dollar retention rates, and how is the company addressing it?

A:Sarah Walter Blanchard explained that multiyear COVID contracts from 2021-2022 lacked proper implementation and alignment, leading to downsells and logo churn during renewals. The company is addressing this by improving customer success approaches, introducing AI SKUs, and leveraging the new Chief Customer Experience Officer, Neeracha, to optimize outcomes. Most of these contracts will be resolved this year.

Q:How is the company balancing renewal headwinds with pipeline development and growth?

A:Sarah Walter Blanchard noted that while there are renewal headwinds, the company has momentum in pipeline growth, particularly in NEMAR, APAC, and LatAm regions. Bookings and pipeline growth are up, and the company expects substantial increases in net new ARR in Q3 and Q4. The Udemy 2.0 initiative is expected to enhance retention and drive growth.

Q:What is the company's strategy for addressing macroeconomic uncertainties and budgetary constraints?

A:Hugo Sarrazin highlighted that while L&D budgets face headwinds due to layoffs and uncertainty, there is a strong need for workforce reskilling. The company is targeting budgets outside L&D by offering solutions like AI role play and customized learning experiences, which appeal to broader business needs.

Q:What is the company's approach to programmatic advertising and its potential impact?

A:Hugo Sarrazin explained that the company is experimenting with programmatic advertising to monetize its 39 million monthly visitors. This includes pre-roll, mid-roll, and post-roll ads, as well as sponsorships. The company expects this to become a significant revenue stream over time.

Q:How are customers responding to the new AI readiness and growth packages?

A:Hugo Sarrazin stated that the reception has been overwhelmingly positive, with the new AI SKUs generating 25% of the overall pipeline. These packages make it easier for the sales team to present targeted value propositions and are expected to significantly impact revenue by year-end.

Q:What role does the new CTO, Ozzie, play in the Udemy 2.0 product roadmap?

A:Hugo Sarrazin emphasized that Ozzie brings expertise in scaling enterprise software and will help develop the backend to support multiple SKUs, license management, and new pricing models, including platform fees and consumption-based pricing.

Q:What is driving the green shoots in the consumer business?

A:Hugo Sarrazin attributed the growth to a focus on subscriptions, targeting high-demand areas like AI and certification prep, and optimizing marketing efforts in regions with higher demand. The company is also exploring additional monetization opportunities in the certification prep space.

Q:What factors are contributing to improved win rates?

A:Sarah Walter Blanchard noted that win rates, measured in dollars, are improving across both upsell and new business opportunities. This is driven by better execution, the introduction of AI SKUs, and a focus on larger deals.

Q:What is the company's strategy for leveraging partners in sales and marketing?

A:Hugo Sarrazin explained that the company is increasing its use of partners to co-sell and support lead generation, which will provide significant leverage in both enterprise and consumer sales. For example, the partnership with Indeed is proving to be an effective customer acquisition channel.

Q:Review of Unclear Management Responses

A:Management avoided directly addressing the specific timeline for when the COVID-19 cohort from 2021-2022 will fully flush out, providing only general statements about progress and expectations for resolution this year.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

UDMY Transcript

Udemy, Inc. (UDMY) Q3 2025 Earnings Call Transcript

Positive10-29

The earnings call reflects strong financial performance, with stable retention rates and growing pipelines. AI product development and partnerships are poised to drive future growth. While consumer revenue is declining, the subscription model shows promise, and there is optimism about future revenue stabilization. The company's strategic focus on AI and partnerships, along with solid financial metrics, suggests a positive outlook, although some uncertainties remain in consumer revenue timelines. Given the small-cap nature of the stock, a positive sentiment is expected to translate to a 2%-8% increase in stock price.

Udemy, Inc. (UDMY) Q2 2025 Earnings Call Transcript

Positive7-31

Earnings call transcript: Udemy beats Q1 2025 expectations, stock edges up

Unknown4-30

The earnings call presents a mixed picture: strong revenue growth and improved margins are positive, but the flat revenue guidance and consumer segment decline are concerning. The Q&A reveals management's cautious tone on consumer revenue and vague responses on retention metrics, adding uncertainty. The market cap suggests moderate sensitivity to these factors. Overall, the neutral sentiment reflects the balance between positive financial performance and cautious forward guidance.

Udemy, Inc. (UDMY) Q1 2025 Earnings Call Transcript

Unknown4-30

The earnings call presents mixed signals. Positive aspects include a significant revenue increase, improved EBITDA, and strong ARR growth from large customers. However, guidance is flat, consumer revenue is down, and there's no share repurchase program. The Q&A highlights concerns over competitive pressures, AI integration, and customer retention. Despite positive elements, uncertainties in guidance and strategic shifts suggest a neutral sentiment. The company's market cap indicates moderate volatility, aligning with a neutral prediction of -2% to 2% stock price movement.

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Udemy, Inc. (UDMY) Q2 2025 Earnings Call Transcript

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