Udemy's Q3 2025: Contradictions Emerge on Subscription Strategy, AI Integration, and Business Revenue Expectations

Date of Call: October 29, 2025

Financials Results

• Revenue: $196 million, landed above the high end of guidance
• Gross Margin: 67% in Q3, up from 64% in the prior year

Guidance:

• Q4 revenue expected $191M–$194M; full-year 2025 revenue range $787M–$790M.
• Q4 adjusted EBITDA expected $18M–$20M (≈9% margin at midpoint); FY2025 adjusted EBITDA raised to $92M–$94M (~12% margin at midpoint).
• Consolidated subscription revenue for 2025 expected to grow high-single digits year-over-year.
• Directional 2026 insight: consolidated subscription revenue expected closer to double digits and ~75% of total revenue; no formal 2026 guidance provided.

Business Commentary:

* Revenue and Subscription Growth: - Udemy reported total revenue of $196 million for Q3 2025, surpassing the high end of its guidance range, with consolidated subscription revenue growing 8% year-over-year, now accounting for 74% of total revenue. - This growth was driven by accelerated subscription revenue across both the Udemy Business and Consumer segments, representing a strategic shift to more predictable and recurring revenue streams.

• Udemy Business Performance:
• The Udemy Business segment saw revenue increase by 5% year-over-year, generating $7 million in net new ARR during the quarter.

• The growth was supported by a robust pipeline of deals, particularly in sectors like technology, manufacturing, and financial services, where AI implementations are driving urgent upskilling needs.

• Consumer Segment Pivot to Subscription:

• The Consumer segment achieved $63 million in revenue, surpassing its year-end target with nearly 295,000 paid subscribers, representing an increase of 43% year-over-year in subscription revenue.

• The shift to subscription products was driven by superior unit economics, a more financially sound business model, and a focus on delivering a better value to learners by encouraging continuous engagement.

• Investments in AI and Platform Enhancements:

• Udemy is investing significantly in product development and partnerships to enhance its platform, with a focus on AI-generated content, personalization engine, and instructor monetization.
• These investments are aimed at differentiating Udemy's offering in the AI and LLM-driven world, creating stickiness, and supporting strategic growth initiatives.

Sentiment Analysis:

Overall Tone: Positive

• "Beat our revenue guidance" and "15th consecutive quarter of better-than-expected adjusted EBITDA." Subscription revenue grew 8% YOY (consolidated) and Consumer subscription revenue grew 43% YOY; gross margin 67% vs 64% prior year. Management repeatedly emphasized acceleration of higher-quality recurring revenue and planned investments to capture AI-driven market opportunity.

Q&A:

• Question from Ryan MacDonald (Needham & Company, LLC): Color on initiatives to accelerate the transition to consumer subscription, how you incentivize transactional customers to convert, and update on advertising/monetization?
  Response: Shifting acquisition-to-retention funnel (cart, CTAs, reactivation), diversifying channels (Indeed partnership driving strong conversion), phased ad monetization (video ads → broader monetization → sponsorships), and launching outcome-focused subscriptions (certification journeys with Pearson) to drive higher ARPU and conversions.

• Question from Ryan MacDonald (Needham & Company, LLC): Update on Udemy Business pipeline progression into Q4 and renewal trends for COVID-era contracts?
  Response: Pipeline remains robust with growing expansion within existing customers; we're nearing the tail end of COVID-era downsells, gross dollar retention stable, and expect net new ARR to stabilize and return to high-single-digit net new ARR growth in Q4.

• Question from Yi Lee (Cantor Fitzgerald & Co.): How are L&D budgets and AI investments evolving and what must change for companies to scale AI training spend?
  Response: L&D teams face pressure to do more with less; Udemy's broader end-to-end offering (technical + nontechnical, mastery, assessments, role plays) improves ROI and win rates, and moving upmarket with value engineering and targeting economic buyers is enabling scale.

• Question from Yi Lee (Cantor Fitzgerald & Co.): Which types of vendors are customers consolidating and from which budgets are you taking share outside L&D?
  Response: Customers consolidate both local/niche vendors and major competitors; Udemy is winning budgets from IT, engineering, sales, marketing and enablement by articulating business-outcome ROI (e.g., faster ramp, reduced handle time).

• Question from Yi Lee (Cantor Fitzgerald & Co.): Should we expect continued profitable growth and what underpins confidence in net new ARR returning to high-single digits?
  Response: Yes—management expects continued strong bottom-line performance while investing in AI/LLM differentiation; net new ARR pickup is supported by a rebuilt go-to-market, larger deal pipeline and higher $100k+ deals (net new ARR was $7M this quarter).

• Question from Josh Baer (Morgan Stanley): How should we think about the '26 EBITDA cadence versus prior targets and what is driving the change (subscription pivot vs top-line headwinds vs investments)? Where are investments being deployed?
  Response: Company is trading some near-term margin expansion for offensive growth investments: subscription-first pivot reduces Transactional near-term growth, but investments—primarily product (platform, personalization, AI role play, assessment, instructor monetization) and select partnerships—are intended to drive larger, stickier revenue and an inflection in mid-2026.

• Question from Stephen Sheldon (William Blair): Clarify the Q4 ARR comment—was the 'high-single digit' reference a sequential dollar increase or YOY?
  Response: Clarification: that was net new ARR as a sequential dollar increase (i.e., net add in dollars quarter-over-quarter).

• Question from Stephen Sheldon (William Blair): When might Consumer revenue stabilize and return to growth given the subscription pivot?
  Response: Management expects Transactional declines to be overtaken by subscription growth around mid-2026; not ready to provide an exact date but expects to be close by then.

• Question from Jason Tilchen (Canaccord Genuity): Use cases for AI Role Plays and how they're translating to wallet share?
  Response: Role Plays used broadly (e.g., performance reviews, sales rehearsals, call-center scenarios, consulting rehearsals using customer decks); adoption in hundreds of enterprises and thousands of role plays; plan to monetize via tiered usage pricing and standalone, value-based offerings to capture incremental wallet share.

• Question from Jason Tilchen (Canaccord Genuity): Are the increased investments primarily product or elsewhere?
  Response: Primarily product-focused, with smaller incremental investments in partnerships.

• Question from Nafeesa Gupta (BofA Securities): With lower instructor revenue share (moving toward 15%), are you seeing instructor churn?
  Response: No material churn noted; company is committed to instructors, engaging them, and introducing new monetization channels (one-on-one coaching, cohorts) plus production tools to create alternative revenue opportunities and efficiencies.

• Question from Nafeesa Gupta (BofA Securities): Thoughts on acquiring traffic through AI platforms and integrating with large models/search?
  Response: Validated as a strategic channel but approaching thoughtfully; Udemy can integrate (MCP capabilities) but is focused on building a distinctive chat/consumer experience and ensuring clear monetization before deep distribution bets.

• Question from Devin Au (KeyBanc Capital Markets): Pipeline for large customers up but net adds stepped down—timing or churn?
  Response: It's a mix: pipeline growth is driven by expansion within existing customers as well as new logos; expansion deals are a larger portion of pipe, explaining the dynamics between pipeline and reported net adds.

• Question from Yi Lee (Cantor Fitzgerald & Co.): On certification and career journeys—will you partner with educational institutions or large tech firms to validate outcomes and placements?
  Response: Yes—connecting certification prep with exam validation (e.g., CompTIA, partnership with Pearson) and building career journeys that combine courses, projects, coaching, communities and job links to close the loop on outcomes and create defensible, outcome-focused offerings.

Contradiction Point 1

Transition to Consumer Subscription and Impact on Revenue

It involves the strategic shift towards a consumer subscription model and its expected impact on revenue, which is crucial for investors and stakeholders to understand.

What is the impact of the transition to consumer subscription on EBITDA and investments? - Josh Baer (Morgan Stanley, Research Division)

2025Q3: Transition to consumer subscriptions has led to a strategic focus on AI platform development, personalization engine, and partnerships. These investments support our strategic pivot for future growth and market leadership. Despite short-term headwinds, we expect subscription revenue growth to outpace Transactional declines. - Sarah Blanchard(CFO)

How are enterprise customers responding to the new AI readiness and growth packages, and when will these have a meaningful impact on revenue? - Jason Ross Tilchen (Canaccord Genuity)

2025Q2: We are seeing the growth in subscription; it's a small percentage of what we do, but it is growing. We are also seeing a decline in the transactional portion. But we're feeling like the growth in subscription is offsetting that decline and we are certainly not seeing any slowdown. - Sarah Blanchard(CFO)

Contradiction Point 2

Impact of AI on Learning and Platform Transformation

It highlights the strategic direction and expected impact of AI on Udemy's learning platform, which is central to the company's competitive positioning.

Can you detail the initiatives and incentives aimed at accelerating the transition of existing transactional customers to a subscription model? - Ryan MacDonald (Needham & Company, LLC, Research Division)

2025Q3: We are transforming our digital marketing strategy, optimizing acquisition to retention processes. This includes changing call-to-action and positioning on the website, reactive customer engagement, and expanding diverse customer sources, such as the successful partnership with Indeed. - Hugo Sarrazin(CEO)

What are your key observations from your first 4 months? - Joshua Phillip Baer (Morgan Stanley)

2025Q2: AI reskilling and increased expectations for AI in learning are prevalent. Udemy is pivoting towards a more integrated platform, expanding capabilities, building a platform, and embedding AI for instructors and learners. - Hugo Sarrazin(CEO)

Contradiction Point 3

Consumer Subscription Strategy and Impact on Revenue

It involves the strategic shift towards consumer subscriptions and its expected impact on revenue, which directly affects investor expectations and company financial planning.

What impact does the consumer subscription transition have on EBITDA and investments? - Josh Baer (Morgan Stanley, Research Division)

2025Q3: Despite short-term headwinds, we expect subscription revenue growth to outpace Transactional declines. - Sarah Blanchard(CFO)

Does shifting focus to consumer subscriptions yield faster results than enterprise shifts? - Terrell Tillman (Truist Securities)

2025Q1: Yes, there could be an impact on GMV if learners expect transaction-focused models. However, we're optimistic about subscription growth. - Sarah Blanchard(CFO)

Contradiction Point 4

Udemy Business Revenue Expectations

It involves expectations for Udemy Business revenue growth, which is a key financial indicator for investors and stakeholders.

How do you explain the decline in Udemy Business net adds despite strong pipeline comments? - Devin Au (KeyBanc Capital Markets Inc., Research Division)

2025Q3: The pipeline growth is driven by expansion deals with existing customers, even as new logo adds are anticipated in Q4 and 2026. - Sarah Blanchard(CFO)

How should we think about enterprise ARR growth in 2025? - Devin Au (KeyBanc Capital Markets)

2024Q4: Net new ARR for the quarter will be a sequential dollar increase. - Sarah Blanchard(CFO)

Contradiction Point 5

AI Integration and Monetization Strategy

It pertains to the company's approach to integrating and monetizing AI capabilities, which is crucial for staying competitive and generating revenue.

Can you discuss the unique use cases and impact on wallet share of AI role plays in enterprises? - Jason Tilchen (Canaccord Genuity Corp., Research Division)

2025Q3: AI Role Plays offer varied use cases like performance reviews, sales calls, and consultancy training. We're monetizing this capability with tiered offerings and standalone solutions, targeting non-L&D buyers such as IT and sales leaders. - Hugo Sarrazin(CEO)

How significant is the AI opportunity in terms of sales growth, and how will the new Chief Customer Experience Officer contribute? - Yi Lee (Cantor Fitzgerald)

2025Q1: AI is central to Udemy's offerings, and we're exploring monetization strategies like targeted AI packages and premium versions. - Hugo Sarrazin(CEO)