The company is seeing weakness in customer retention trends despite strong numbers in its latest quarter.
Shares of online learning platform Coursera (COUR -7.28%) crashed on Friday after the company reported financial results for the third quarter of 2024 and reduced its full-year financial guidance. As of 10:30 a.m. ET, Coursera stock was down about 8% but it had been down nearly 18% earlier in the day.
The quarter was good but the outlook is confusing
The drop for Coursera stock has a complex explanation because the Q3 numbers looked good. Management had said that it would generate revenue of $175 million, at most. But in Q3 the company generated revenue of $176 million. Moreover, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $13.3 million surpassed management’s guidance of up to $4 million.
Considering Coursera outperformed its financial guidance, one would have expected its stock to be up, not down. But the company oddly lowered its revenue guidance for the year. Before, it had guided for revenue of $695 million to $705 million. Now, it’s guiding for revenue of $690 million to $694 million, which is surprising given its outperformance in Q3.
Coursera’s management is looking at weak demand from consumers, which is negatively impacting retention trends. And the lower guidance in light of these trends is why Coursera stock is down today.
Is the sell-off justified?
I believe investors may have overreacted this morning, which may be why Coursera stock is already climbing back from lows. For starters, Q3 revenue was good and strength in other parts of the business — Q3 enterprise revenue was up 10% year over year — offset pockets of weakness. Moreover, profitability is ahead of schedule and management consequently raised full-year EBITDA expectations.
In short, there’s enough here to like that investors might want to reconsider Coursera stock after this morning’s sell-off.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.