On Tuesday, Citi reaffirmed its positive stance on Udemy Inc (NASDAQ:UDMY) stock, maintaining a Buy rating and a price target of $20.00 for the online learning platform.
The firm highlighted the robust growth rate of Udemy Business in the current challenging cycle for Enterprise Learning & Development (L&D). Despite a modest overall growth projection of approximately 7% for 2024, Citi emphasized the significance of Udemy's progress toward its profit and free cash flow goals.
According to Citi's analysis, while a significant rerating of Udemy's stock might not occur until there is clear visibility of revenue growth, which is expected deep into 2025, the current valuation presents a notable opportunity.
The firm pointed out that Udemy's valuation stands at an extraordinary 1x current year enterprise value to sales ratio. This valuation, as per Citi's perspective, offers a compelling entry point for investors with a 12-month investment horizon.
Udemy's resilience in a tough market environment was acknowledged, with the company weathering recent challenges. The firm's Buy rating is based on the potential for over 100% upside from current stock price levels.
Citi's stance reflects confidence in the company's ability to navigate the cyclical headwinds facing the Enterprise L&D sector and deliver on its financial targets.
The analyst's comments underscored that while Udemy's near-term growth rate may appear modest, the company's strategic focus on profitability and free cash flow is a balancing factor. This approach is expected to underpin the company's financial health as it moves forward.
In conclusion, Citi's reiterated Buy rating and price target for Udemy are predicated on the company's strong business segment growth, attractive valuation, and the potential for significant stock appreciation in the medium term.
The firm's assessment suggests that, for investors with a longer-term view, Udemy represents a promising investment despite the current subdued growth expectations for 2024.
In other recent news, Udemy reported strong financial results with a 9% year-over-year increase in its second quarter 2024 revenue, reaching $194 million. The company's annual recurring revenue (ARR) also showed a positive trend, growing to nearly $500 million, a 17% rise year-over-year.
Despite these positive results, Udemy revised its full-year revenue guidance to $779 million, attributing this to lower consumer revenue expectations and impacts from foreign exchange rates.
In a strategic move, Udemy announced the appointment of its co-founder Eren Bali as the new Chief Technology Officer (CTO), who will focus on accelerating the company's product strategy, fostering growth in the enterprise segment, and enhancing direct-to-consumer offerings.
The online learning platform also announced a strategic pivot towards large enterprise customers, which management believes will drive significant growth and better leverage their business model.
In terms of analyst notes, Cantor Fitzgerald adjusted Udemy's price target down to $18.00 from $20.00, while maintaining an Overweight rating on the stock.
This adjustment followed Udemy's recent financial performance update. These are the recent developments in Udemy's operations and financial performance.
InvestingPro Insights
In light of Citi's optimistic outlook on Udemy Inc (NASDAQ:UDMY), recent data from InvestingPro complements the narrative of a company with notable strengths amidst a challenging market. InvestingPro data highlights a gross profit margin of nearly 60%, a clear testament to Udemy's ability to maintain profitability in its core operations. Additionally, the company has demonstrated resilience with a 12.83% revenue growth over the last twelve months as of Q2 2024, signaling potential for future expansion.
InvestingPro Tips reveal that Udemy's management has been actively buying back shares, a sign of confidence in the company's value. Moreover, the company holds more cash than debt on its balance sheet, providing a cushion and financial flexibility in volatile market conditions. These factors, combined with the InvestingPro fair value estimate of $10.17, slightly below the analyst target, suggest that Udemy's stock could indeed be undervalued at its previous close price of $7.77.
For investors considering Udemy, these insights may offer additional confidence in the company's financial health and its potential for future profitability, as predicted by analysts. For a deeper dive into Udemy's financials and to explore further tips, including the 11 additional tips listed on InvestingPro, interested parties can visit https://www.investing.com/pro/UDMY.
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