Coursera's Valuation Crossroads: Can Growth Outpace the Premium?

The online education sector has long been a battleground for valuations, but Coursera's (COUR) recent downgrade by Morgan Stanley highlights a critical question: Is its 43% valuation premium over Udemy (UDMY) justified in a slowing growth environment? With Coursera now trading at a significant multiple to its peer, investors must weigh its growth prospects—bolstered by AI innovation and strategic shifts—against decelerating enterprise demand and macroeconomic risks.

The Premium Puzzle: Why Coursera's Valuation Surged

Morgan Stanley's decision to downgrade Coursera stems from its EV/CY26 Gross Profit (GP) valuation now sitting at a 43% premium to Udemy, reversing a prior 10% discount. This shift reflects Coursera's recent outperformance, which saw its stock rise 12% year-to-date versus Udemy's 1% decline. But the analysts argue this gap may not widen further, given Coursera's growth headwinds.

The firm's price target for Coursera was raised to $11 (from $10) but remains below its 52-week high of $13.50. Meanwhile, Udemy's target was lifted to $9, reflecting its improved valuation relative to Coursera. The premium's justification hinges on Coursera's higher growth trajectory: it guides for 4-5% revenue growth in 2025, modest but better than Udemy's projected flat-to-down trends.

Growth Challenges: Enterprise Slump and Margin Pressures

Coursera's enterprise segment—a key growth driver—has stumbled. Its Net Revenue Retention (NRR) fell to 91% in Q1 2025, down from 108% a year earlier, signaling softening demand from corporate clients. Compounding this, third-party web traffic growth turned negative year-over-year, a worrying sign for its consumer business.

The integration of its Degree program into the consumer segment adds complexity. While this simplifies reporting, it obscures the Degree business's standalone potential—a high-margin, subscription-based model. Margins remain under pressure: despite mid-single-digit revenue growth, operating margins have barely expanded due to investments in AI and product development.

Bulls vs. Bears: Why Coursera Still Wins the Skew

Morgan Stanley still prefers Coursera over peers, citing its “more favorable Bull/Bear skew.” The company's Q1 beat—a 6% revenue rise to $179M—and its AI-driven product launches (e.g., personalized learning tools) underscore execution strength. Appointing Patrick Supanc, a former Under Secretary of Education, as Chief Product Officer signals a focus on innovation and scalability.

The firm's AI investments could be a differentiator. Unlike Udemy's marketplace model, Coursera's structured courses and partnerships with universities may better withstand economic volatility. However, these bets require sustained capital expenditure, which could strain margins further.

The Valuation Tightrope: Risk-Adjusted Returns?

At current levels, Coursera trades at 1.7x CY26 sales and 13.5x FCF, versus Udemy's 1.5x and 12.5x. The gap isn't unreasonable if Coursera's growth holds, but risks lurk. Morgan Stanley's 12x FCF multiple for Udemy suggests the market is pricing in Coursera's upside already.

Investors must ask: Can Coursera sustain its premium as enterprise growth slows and macro pressures linger? The 43% valuation spread implies a significant leap in performance, yet Q1's results—while positive—were modest. Meanwhile, Udemy's cheaper valuation offers a safety net if Coursera's growth falters.

The Bottom Line: A Neutral Play for Now

Morgan Stanley's Equal-weight rating is prudent. While Coursera's AI bets and strategic moves are compelling, the premium demands execution perfection. Investors seeking exposure to education tech may want to wait for a pullback to Udemy-like multiples before buying. For now, the stock offers neutral risk-adjusted returns—a hold until growth accelerates or valuation contracts.

Backtest the performance of Coursera (COUR) when 'buy condition' is positive quarterly earnings surprises (revenue growth >4%) and 'hold for 60 trading days', from 2020 to 2025.

Historical data reveals that such a strategy delivered a compound annual growth rate (CAGR) of -3.08% from 2020 to 2025, with a maximum drawdown of 39%, underscoring the risks of relying solely on earnings momentum. These results align with the neutral outlook, as the stock's performance under such conditions has been volatile and unprofitable.

In a sector where patience is a virtue, Coursera's story remains unresolved. The premium is a bet on its AI-driven future, but the path to outperformance has narrowed. Investors should monitor enterprise NRR trends and margin progress closely before diving in.