Navigating Portfolio Re-Allocation Amid High Market Valuations

Udemy, an online learning platform, is undervalued despite its growing enterprise AI-upskilling push. The stock market's focus on large-cap tech stocks has left multiples expensive, making it essential for investors to consider portfolio re-allocation to protect against potential downside. Udemy's cheap valuation presents a compelling opportunity for investors seeking to diversify their portfolios.

The stock market's recent focus on large-cap tech stocks has led to expensive multiples, making it crucial for investors to consider portfolio reallocation to protect against potential downside. One stock that has caught the eye of investors is Udemy (NASDAQ:UDMY), an online learning platform that is undervalued despite its growing enterprise AI-upskilling push.

Udemy, founded in 2009, has evolved into a popular online course platform with over 250,000 courses and 39 million monthly visitors. The company's dual revenue model includes a-la-carte course certification for consumers and subscription plans for small businesses and enterprises. Recently, Udemy has been pivoting away from its consumer model and focusing more on enterprise customers, aiming to capture the growing demand for AI skills.

The company's shift to an enterprise-focused model has led to a significant turnaround in its adjusted EBITDA. Udemy is guiding to $86 million of adjusted EBITDA in FY25, which is double the $43 million it earned in FY24. This growth is driven by the enterprise segment, which grew 7% year-over-year to $129.3 million in revenue in Udemy's most recent quarter, accounting for 65% of overall revenue Udemy: Cheap Valuation Amid Enterprise AI-Upskilling Push^[1].

Despite the company's progress, there are risks to consider. Udemy's enterprise net dollar retention rate of 99% reflects 1% net churn, which is better than its overall customer retention rate of 5%. However, as enterprise becomes the dominant piece of Udemy's revenue, investors should monitor retention trends closely Udemy: Cheap Valuation Amid Enterprise AI-Upskilling Push^[1].

Udemy's current share price near $6 gives it a market cap of $962.3 million. After accounting for the $392.0 million of cash and marketable securities on Udemy's latest balance sheet, the company's enterprise value is just $570.3 million. This reflects a 6.6x EV/FY25 adjusted EBITDA multiple, which is a very attractive single-digit multiple in an otherwise expensive stock market Udemy: Cheap Valuation Amid Enterprise AI-Upskilling Push^[1].

In conclusion, Udemy's cheap valuation presents a compelling opportunity for investors seeking to diversify their portfolios. While there are risks to consider, such as recent churn trends, the stock's bargain-basement valuation is reasonable compensation for investors monitoring how recent AI content performs with new enterprise buyers. However, it is essential to approach Udemy with a measured and well-timed buying opportunity, as it is not a stock to bet the proverbial farm on.