Coursera, Inc. (COUR) Earnings Call Transcript & Summary

Great. Hello, everyone, and good afternoon. Thanks for joining Day 3 of the 2021 UBS TMT Virtual Conference. My name is Taylor McGinnis, and I am one of the analysts on the software equity research team here. In this session, we -- I am joined by CFO, Ken Hahn, of Coursera. Ken, thanks so much for joining us.

Yes, absolutely, Taylor. Happy to be here.

Perfect. And just to remind everyone, if you'd like to ask a question, we'll try -- I'll try to save some time at the end and you can submit those questions via the Ask a Question tab, that's in the upper right-hand corner of the screen. And before we start, I'm going to read a quick safe harbor statement. So in today's discussion, the company may make forward-looking statements based upon current expectations. Actual results could differ materially due to a number of risk factors. For more information, please refer to Coursera's IR website for the latest SEC filings and safe harbor statements. So with that, Ken, we'll jump in.

All right.

Perfect. So maybe we'll start with an update on the demand environment and the impact Coursera might be seeing from some of the recent macro trends. A key theme is labor shortages and changing skill requirements. One, that's benefited Coursera by driving the need for a lot of the reskilling and upskilling but that also had some impact on college enrollments, given the strong hiring market. So maybe you could just talk about like the trends and the magnitude of impact that you've seen to the extent that's changed at all.

Sure. So firstly, I'd agree with the commentary on seeing some tailwind, which is interesting because as people talked about COVID looking back, and I think a lot of people still thinking it this way, and the effect on some of the education businesses, particularly the consumer education businesses, people saw this tailwind that would abate when everybody was locked up and to an edutainment, if you will. And certainly, there was a surge across the board for everybody in the space on the consumer side. I think the unanticipated piece of COVID is the change in really the rate of learning required for people to remain job relevant as these jobs shifted online towards more tech, the people being displaced were not the same one with the skill sets to fill those still wanting tech jobs. And so that has been a major driver, something we don't see -- we think that a relatively permanent change that the pace of change has increased. So certainly, that's benefited the business, particularly around our professional certificates. We can talk about that more. But it's something we see as an important and longer-term trend. In fact, the enterprise business as well, some of the labor shortages, you need to retrain workers and create skills because there's not enough to go around. So some very basic level, but pretty important trends that we see benefiting the whole industry and I think us particularly given how we compete across the board. As far as new students on the degree side, yes, interesting. There's the news out about that different people have been talking about declining college enrollments. Historically, people view education as countercyclical. As it relates to our business, yes, maybe it slowed down, but it's a very, very early business for us. It's our biggest market, but we are that big. It's at the early stages. So we don't really think about that in terms of being a gross inhibitor. And we do think, over time, higher education is going to continue to exist and be an enormous market, and we think we're going to help it evolve.

And then any other interesting catalysts to think about for you guys or patterns that you would flag in terms of what you're seeing in terms of trends, maybe things that are less obvious to the group listening in?

I think -- this might not be not obvious, but I think that there's a fundamental consumer focus on outcomes more so than there used to be historically, in my opinion. And we think as people look at education and how they consume education broadly, training broadly, we think we're at the beginning of some very different changes that have -- or some changes that have come through consumers going through COVID. We think people are going to be much more cognizant what they pay for and whether that pays back. I think some long-term trends are going to focus on kind of what we do, which is nice. The outcomes matter more, I think, for the learner than they used to.

Perfect. And now we'll dive into some of the segments and maybe we'll start with the enterprise. So I thought the paid customer growth acceleration to 124% in this last print with the highlight. This segment is, I think, been driving a lot of the near-term top line growth potential. So I guess how durable is this pace of new logo growth and the trends that are supporting that? And then as maybe a second part to this question, can you maybe talk about the expansion opportunity, too, in the base and how you expect the impact of dollar-based net retention to trend over time?

Yes. Great questions. On new logos, I'll talk a little bit about growth in the segment, which has been outstanding for us and others in the space. It's a great market right now. Companies are -- again, there's not workers to hire, so train the ones you have, even in the U.S. has become more of a trend lately, and we see that lasting for a long time. I think the space is moving [indiscernible]. Our second largest market, we're super excited about it. It's a great market. Competitive, it divides in the different segments, particularly on the Coursera for business side, which I'll explain in just a second, and I guess tough level to start. We have a couple of verticals within the enterprise space that not everybody has or to the degree, and we're advantaged in a couple of them and unique in one of them. Coursera for Business is the way most people -- it's the largest part of our business, but it's the way most people think about the enterprise space. And that's simply selling, training, and we compete a little bit differently. We talk about transference of skill sets that we measure in aptitude versus targets for individual roles. That's worked very well for us. It's what companies are really looking for. They don't like training for training's sake. They want to imbue a set of skills in the workforce that gives them competitive advantage, and that's why they're investing. And so that's done well. And we -- from an assessment standpoint, have a pretty unique position, we think, with both the data and the content that does those assessments. But that's how we compete in the space with others who have other different strengths and weaknesses depending what their customer is looking for. So that's C4B, that is how most people think of the space. We also have Coursera for Government, which you can think of as a vertical strike, right? You have that in software. The government sector tends to be different. They're longer processes. It's different -- different skill sets. It gets closed longer. For us, it's been a great source, attempts to reskill and reeducate large populations. And so we think we're relatively uniquely qualified to compete well in that space given the caliber of our content, right? If you're the President of a country, you want to be associated with the top content in the world, the top schools in the world. So it plays well to our strength. So that is one of our competitive assets. So we've done very well in Coursera for Government. They're bigger deals. By the way, on the enterprise side, they tend to be 6-figure deals that are multiple years since we are having discussions around NRR as you've asked, asked about, I'll address that in a second. But on the government side, they tend to be bigger deals. We get 7-figure deals with the government. They're longer term. And again, we like that space, and we've actually hired as many people do in that vertical, a specialized sales force around that. And we think that's a great ongoing opportunity. Last thing, Coursera for campus, which is different than anybody else approaches is because of our relationship with the universities, it makes a lot of sense. We seeded that in the market during the pandemic. It was great. And we have a premium marketing model, and our consumer benefits the enterprise business through the consumers. We can talk about that a little bit more as well as degrees. But Coursera for campus is, again, which is seeded, is for campuses, for schools to buy our solution, including the content. So it gives access to the content for the students and the professors of the program and if they want as another use case to provide for credit. And we're seeing a lot of interest here. It's fascinating as schools try to figure out how they're going to change curriculum with post-pandemic, whatever that means. But it's kind of a unique offering. We're still sorting it. It's the smallest. And we think it's a great opportunity and kind of placed naturally with what we do on the university side, but from a content partnership as well as from a customer standpoint when they become our degree partners. So highest level -- and by the way, that, while it's early, is where we're seeing the most number of new accounts. It's lower ASP. It's lower dollar because a lot of those are initial entries into those schools. And -- but again, interesting. Will it be huge in enterprise? We will see, but it plays very well to our strengths and in continuing our partnerships with the schools. But that's one of the bigger reason for the drive of new logos. NRR. You also asked about in pure analyst fashion, you gave me a multistage question. So expansion of NRR. Look, we're 113% last quarter. We feel pretty good about that. It feels software-like. It feels Saas-like. There's probably room for it to go up over time. We would not put a marker and say watch this every quarter, it's going to go up. But we wouldn't be surprised if it increases modestly over time. It's a good number. It's a recurring business is what it tells you. But there could be some upside. I wouldn't build it in as a bunch of upside, but we like the way that business is running, and 113% is pretty nice.

Definitely. And in terms of what would be the drivers there, right, can you talk about the expansion opportunity there? Would that really be coming from maybe as you ramp in government or some of what you're doing on the campus side where you've been in business for that's really -- it sounds like the bulk of that business there? So can you talk about what would be the drivers if we were to see that uptick?

Sure. So there's the underlying driver that we've seen over in Coursera for Business where we'll come in with a department and then expand to multiple departments and sometimes whole companies as people start to get used to the quality of the programming and measuring the skill sets, in particular when it's driven overall by LND leaders who are trying to measure these things and then to promote them when they see them successfully transferring skills. That's what we do today. That would be normal course. But there's lots of opportunity. Most of our deals are not full company deals. There's real opportunity to expand even on the C for B side. Coursera for Government, very similar. I think we'll see the same thing over time as people realize value. One of the important things here, I think, is measuring outcomes over time. A lot of this is newer trends since COVID as people are seeking to educate a population, and so there isn't a precedent for it so people don't necessarily have data. We think we're beginning to accumulate some pretty good data to say that these things work. If you think about it, particularly around some of we call them internally the gateway, we're taking people from being unskilled to being skilled in a particular subject, essentially certified by the tech platform promoter or owner of that product. That's something that's taking people with no skills in developing real and marketable economic skills. So we think and the early measurements are saying that, that is actually paying off quite well. Again, it's a recent phenomenon, so it's hard to get good data, but we think that is going to continue to drive purchases and expansions both on the government side. And then exactly right on the campus side, super early, seeded market. It's evolving. It's a new world for a lot of universities. As they're creatively approaching it, varies quite a bit between the U.S. and internationally. India is an entirely different story. They are much more aggressively promoting people doing online education to supplement what they're doing for their degrees. There's a new credit bank concept that came out 3 or 4 months ago. And this is just to give you an idea of the changes, not to hang a hat on that opportunity specifically, but it's an interesting opportunity. And that's for the Indian government, and again, you can find this all online. You can read about it. It's all official documents have been published. There were a few months ago, roughly 50 programs. We have a few of those programs where it's required that the higher educational institutions in India take those courses from students who have taken them, take those and award credit. And that's because the Indian government has realized that they want to expand the rate of post secondary education, they have a target. I forget the number. I want to say, 25% raising to 30%, but that's slightly wrong, but that means 30 million new higher type -- university educated students that have to do it to meet the demand. There's not enough capacity. So I think that's one interesting example is what I -- how I refer to it. It's also a good current opportunity for us that we're going after. But there will be other opportunities like that. We do think the way people are combining offerings and we're seeing the early stages of it as it develops is fascinating. So I do think, over time, C4C is definitely an area where we see expansion, which will [indiscernible] numbers, to your question.

Perfect. And then staying on the topic of enterprise, I'd love to talk about the competitive landscape and how you guys are even positioned with like within each of these 3 different buckets. So I know that you guys have talked a lot about this is the most competitive of your segments, and a common question that we get is like the threat from a Pluralsight or Udemy, right, or Udacity. So can you maybe talk about -- when you think about all these 3 different categories and maybe some of the demand, maybe some of the needs today in terms of labor shortages, right, and what verticals or sectors that might be happening and more and how your content aligns with that versus others? Could you talk about some of the puts and takes there? And even to you that you have that you're going after government, going after campus, going after some of these other opportunities, like how that differentiates?

Yes. So I'll start with how that differentiates, your last question. I think it differentiates because it's an opportunity that we get to pursue with less competition. And because on the government side, I'd argue there are 2 things that are very important. One is overall caliber reputation of your education providers of the content where I think, inarguably, we have the best content, which is not intended to be arrogant. It's due to our origin and how the company had built things up is factual. I don't have anything to do with it. It's -- but it's great. Then there are a couple of competitors out there with very good at content, too. It's not saying anything different, but that's very important in the government sector. And then I think another is it jobs-ready, skills-ready, that's another big reason they're buying. And so I think there's a very natural fit for us on the government side. So we tend to compete very well there. C4C, super early-stage developmental but we compete there somewhat uniquely whether they are interested in the space or not, it would be hard for them to approach. And never say never, but it's I think we have that market to ourselves for a little while. I think there's less interest in universities using it like businesses do just only solely to train up people. On the C4B side, which is the most competitive, it really depends what the buyer wants. And some watch short-form content because workers can -- if you look at stats, will only learn in 15-minute increments. That's not what we try to compete on. The flip side of that statement is you can't really learn a valuable skill in 15 minutes. So it's just different content for a different reason. If you're trying to data enable an organization from a data literacy standpoint, you can't really do that in short form. So there's -- but short-form services purposes. We're doing more short-form so we can have it as part of the overall package. Some of the short-form people are trying to do more long-form. But I think there's a pretty natural differentiation on what you're buying. Again, what we sell, others are starting to imitate. This is where we started. This is true of us 3 years ago, 2 years ago as we can keep on skill sets around roles and how the learnings translate to those assessments of those skill sets and capability, and there's only a couple of players who do that. There's other areas amongst the names you named, were very specific around IT, around programming, where that content is extraordinarily important for the sole reason you're buying it. One of those competitors does particularly well there, as you'd expect. So it's a big market. There's a lot of room, and I think everybody is doing relatively well. It's kind of divided as it often does, but I'd argue there's more differentiation and segmentation in the space than typically. I think people are naturally falling into those zones, and I think it's a great business for a lot of us. And it should be. It's important.

Perfect. And then we'll move on to the consumer segment and switch gears a little bit here. So new register learner growth has been between 5 million and 5.5 million in the last 4 quarters, which is about the pre-pandemic levels that you guys saw. And I guess the concern is that as you move further away from the pandemic, some of those tailwinds that you saw as the environment normalizes, maybe you start to see either growth moderate or you could see churn start to rise. So this segment, I know it's very hard to get visibility into. But I guess what are you guys seeing in terms of engagement and usage of the platform amongst your existing base? Any interesting trends to flag to the growth?

Sure. For context, consumer, of course, is our largest business. It's the one that has the least visibility by its nature, as you have heard. It's important for us, though. It affects the way we compete in our other segments. It's really important. The degrees business, half of our new degree students were very expensive to generate, by the way. If you don't have something like a [ race to learn base ], they come free because of that. On the enterprise side, our consumer business, believe it or not, provides 20% to 30% of the leads for enterprises because the type of people who are part of that registered learner base. So people who find great interest in data, in programming and analytics. And so they happen to have jobs where it's actually meaningful on an enterprise side. So the consumer business is important beyond what it is, and what it is from a revenue standpoint and part of our P&L is also nice to have. It's important. It's grown the slowest of the segments. One day, it will likely be the smallest of our segments. But it's an important contributor regardless of that is what I would say for overall context. As it relates to we're not adding new consumers to the degree we did during the pandemic, of course, right, and we expected that. And we also measure that cohort, that COVID cohort, if you will, as some people like to talk about it across the industry differently because it was very different composition. It was a different type of consumer, in a lot of cases, in addition to a lot of the same consumer consuming more. So yes, there's been some change. As it relates to ability to sustain that business and the growth rates, we're pretty comfortable where we are. We are seeing new demand just because people need to upskill and reskill. Again, we think that's what the pandemic created, and we think consumers are finding a lot of value there. And we've seen that with Coursera plus to some degree, which is relatively new. That is now 25% of the business. Several quarters back, it was 5%. Yes, there's a little bit of cannibalization there when users are coming on to the site because they know they want to switch jobs but they don't know which ones, so they want to experiment a little bit with some, instead of committing to one or the others. So it's a little bit of cannibalization, not all net new, but a good and important pricing and packaging move for us that adds to consumer retention, as I'm sure people are aware, with pricing and bundling, particularly around bundling is everybody gets more out of the relationship, right? And that's much more well understood with some of the Internet models today but didn't use to be as much. But the consumer gets more utility. And more importantly, especially for us, is you develop a closer relationship with the consumer, right? So if you look at our consumer base and adding on, the amazing thing in the S-1 document we went public at the end of March for anybody who doesn't know. But in the S-1, one of the things we did to discuss the value of the registered learner base, which again is down 92 million, is that it provides these new degree students again, once again half.. We put a graph by cohort by year they joined and became a registered user that fulfilled those programs last year. And so if you look, the amazing things made was the very bottom bars in the S-1. But the students from 7, 8 and 9 years ago, it was roughly 1,000 in total. So this is not material, material, how it affected things. But what it said to me, it was a commentary on the relationship that from 7, 8, 9 years ago, you become a registered user. You've likely not monetized us at all, right -- with us at all. And now because of the relationship, you're buying a degree that provides a university partner $5,000, $10,000, $15,000 a year. It's pretty amazing that people stick with us and have that relationship. There is tremendous value in that registered user base. I think one of the things that we're going to see going forward is actually as we get bigger, as we can do more brand advertising, we've done very little branding, this is a product that's broadly applicable to vast swaths of the population and we think will continue to be more so, right, based on the trends we're talking about. And brand advertising is going to be a fib. We're not going to go crazy with no med people around Coursera, I promise you. But we think as we get bigger, there will be some momentum there. And we already have, I'd argue, the top brand, and I think the data says the top brand in the space. And I think that will continue to be helpful on the consumer side, which benefits the overall business as well as society if you want to go on about it.

Yes. And maybe one more on that because I want to talk -- I want to like move in and talk on Coursera Plus. But before we do that, in terms of recent trends that you guys are seeing, whether that be the specific content that people are using on the platform on the consumer side or credential demand, anything that might be like what you find like good or interesting leading indicators as you guys think about how that business can evolve? Anything to call out there that might be interesting for the group?

Yes. I think, I mean we covered it on the calls a little bit. Maybe I'll add some more depth. I think the business we're seeing with the industry partners, the professional certificates that has clearly struck a cord with employers and consumers and is filling a void that needs to be filled from an education standpoint. That has built on itself. We were doing that some years back but at a much smaller level to a couple of programs only. And as we've had success and understood the reason for the trend and the reason for the success, we've continued to push that. So we've added new programs. I think we're going to continue to see value there. It makes a lot of sense for the consumer first, which is what's most important, but it also does for the industry partners. This is them trying to expand the ecosystem around our platform. So they're happy to partner with us. It's all goodness for them and help us with the content and help us do what we do well, which is to promote that content. And we're the biggest channel for that, not only in number of registered users, but also the type of registered user if you look at our content. So I think -- I guess what I'd do is I'd highlight there kind of the nature of it and that it seems like there's a bit of a virtuous circle. And it will also play into employability over time as people look there, which I think is going to become increasingly important for the consumer more than anybody else.

Perfect. And now moving to the Coursera Plus subscriptions. But it seems like these have the opportunity to bring more durability and less volatility, right, to the consumer segment for firm adoption of those. So you mentioned earlier that, that was over 25% of consumer revenue in 3Q. So I guess as we look at that, what are your expectations for the contribution of this offering? Any sense of the customer base that could be a realistic target for these subscriptions? What are your thoughts there?

Sure. So well, firstly, volatility on the consumer side. Our consumer business has the least visibility. So that's true. We have pretty good near-term visibility, though. We have our fingers in the data. It's a consumer Internet business. There are very good ways to model that if we're sophisticated. We are becoming increasingly sophisticated. So we're pretty good near-term visibility. But there is driven by consumer. It's a consumer business. So it's not quite as predictable with the close rates and the pipeline that you see in enterprise and ultimately in degrees. So from a variability standpoint, we -- I guess, is the answer, there's more durability with people who have signed up for Coursera Plus. It's the reason we did it, right, is to turn that lever a little bit. There's pretty big leverage, right? It's new customer acquisition; it's reenablement, which is another -- it's a new currently customer, reenabling from the existing base; and then there's a retention period. Those are the 3 levers, I mean and that's how you manage internally. And so yes, Coursera Plus helps there. Where it goes from the 25%, I'd say we're happy with 25%. It's been a bit of a home run from a pricing and packaging standpoint, it's something we shouldn't be doing. And I think it's fit particularly well as people -- the behavior is changing and people are sampling more from a job perspective, which is, again, what we believe is happening. But -- so that's been good, and thinking about the pricing on that's been good. It has some upside from here proportionally. Is it going to go from 25% to 50%? It's not. I think there's a natural level of consumers for lifelong learners, which is part of it. Part of it is jobs, pictures or subject matter surfers if you want to make up a phrase, which maybe is not, I should stay away from branding. But those types versus lifelong learners, there's kind of a set base of lifelong learners that we think is going to remain with us. And so 25%, if it goes to 30%, 35% over time, that would be great. But it might not, and it's not all important to us, right? It's serving at the right level, develop the right relationship where it should exist is what's important.

Got it. And I want to ask you something that you talked about that you just mentioned earlier that I thought was interesting, where it's a volatile business, not as much visibility relative to other segments, but you guys feel good based on like the data and things like that, that you guys are seeing. So one question that we get and especially from people that might be a little bit more new to the ad tech space, thinking about trends and metrics and what might be good leading indicators. Is there any -- like when you guys, I guess, are thinking about the durability here or even like across some of your other segments, is there anything that you'd like say to the group in terms of, hey, these are a couple of the like things to watch out for, whether that be catalysts, like good forward-leading metrics?

The big -- there's 2 different questions there, I think. So the volatility, but more sustainability is the question. And we've had a couple of, I think, surprising discussions and releases in the space, which is unsettled investors, which is unfortunate for the sector. The -- it's a durable model. The content and the value to consumer in this environment, that is what you have to stop and think about first and foremost with durability sector. Volatility, it's relative. It's growth over time. Again, we're -- on our consumer business, we're not saying put our value there. Our bigger markets are enterprise and degrees. And those are incredibly early. Both of those are, especially degrees. So I think what I would say is look to the content and the value to the consumer on the enterprise business, of course, I don't think any questions on the enterprise. It's doing very well across the board. I think people see the long-term trends. I think the evolution of degrees was going to be very important, And that is early, early, early stage, what happens in higher education and how that interacts across the 3 segments. And then from part 2 of the durability answer is, I think, we compete differently than anybody in the space because we do have the 3side. I think that will expand to employability over time just because we're the natural connector between governments and businesses and the universities or other educators and the consumer in the or others industry. So I think we're in a very nice. So if you believe skilling of human beings is going to become more important over time with some of the changes we've seen over the last couple of years, I'd say there's your durability. In between getting from here to there and how we drive as our own internal target, 30% to 40% growth, which is not a guidance thing, every year forever, maybe we don't always succeed on that, that's tactics on how we get there. And we're trying to be as smart as we can, and we're trying to see where the changes are and how we can leverage our fairly substantial competitive assets to go after those. But we're doing that right now, and it's been working. And we feel great about where we are I think from the durability of the company standpoint. This is a huge long-term space, and we're super early.

Perfect. And I want to go to the degrees business, but before we move on to that just yet. So just on -- last question I can steer, but just on the ARPU side, right, and how to think about that. So I think if you look at the average annual consumer revenue per registered user is about $3. And with Coursera Plus subscriptions, those are $3.99 for an annual license or $59 per month. So it just seems like that has the potential to be a material opportunity, right, as we're looking at that metric and how that could evolve. So any color you could provide in terms of how you guys are thinking about ARPU expectations and other variables that also play into that as well?

So it's a good question, which I'm not going to answer overly specifically. But when we're talking consumer Internet business, higher-priced SKUs will lead to -- should lead to higher ARPU over time. It's not our immediate focus. Again, we -- like our consumer revenue. Do not get me wrong, it's our largest revenue, so -- segment. So certainly, we care about it. Building the other businesses' revenues are -- that's the longer-term higher growth. But the consumer state, it's going to continue to do well. We're going to see growth in consumer. We're very confident. We're not measuring down to -- this is our only business. And optimally, what do we get by pushing ARPU and doing very specific? You can do price differentiation. You can imagine lots of things you could do if this was your sole focus. Our sole focus on consumer is not driving consumer revenue, and that's important to understand. It's not to say we're not paying attention. It's not to say we're not looking for opportunity that is -- you've seen some of the results of what we've done. We've talked about it already, but it's not our primary basis. But yes, as there's more higher priced fees and there may be more things we do in the future, but that will not be the primary driver of that business or the business as a whole certainly.

Perfect. So let's talk about some of the long-term opportunities and move to the degrees business. Revenue for this segment, as well when you look at revenue per student, and I think that declined sequentially for the last 2 quarters. And I think there was some impact from a seasonality perspective. You talked about lengthier lead times on the call. Some -- there were some macro things mentioned with a stronger labor market. So I guess how should we think about all of these variables impacting growth as we look ahead? And can you provide me any more color on the ramping process to revenue generation once you land a new degree and how we should think about that?

Nice. Let's start with the last one first, one more time, just structurally, because it's important -- and thank you for asking that question, by the way. I need to remind myself that we're a new public company. And while we've seen a lot of investors, this is new for some people. The model on the degree side, super important to understand, it begins -- the revenue generation begins with landing an industry partner or expanding to another degree within that industry partner -- industry -- sorry, education partner, university, right, who our partners are. The -- so we start with that effort. That's 6 months to a year to land a new university. It's quicker when you add a new program to an existing university, of course, because they've seen success already. These are very small numbers today. We have 33 programs and 16 partners, right? So very early stages. There is a tremendous interest in pipeline right now, which is where we spend a lot of time talking about. This is our largest market. And it is early, early, early from a market perspective. It's early, early, early as far as being a business for Coursera. It's been around a few years, and we have some great early partners. But the world has changed, and that market has changed in the last year or 2 as you'd imagine. But we begin that effort with landing one of these partners. That partner in our model, which is different than some of the OPM providers out there, we're not super competitive with them. We're doing the same thing. And what most -- what everybody does is there's a way to get the courses online so students can take the courses, you're enabling it essentially, and then you fill the student cohorts. That's fundamentally what schools are buying. There's different ways to approach that. Our way is different than everybody else's. And there's some pros and cons, I'm sure. But what we do is we provide a platform that the university needs to put, the content needs to put the degree on. So they start producing courses. It takes about a year to get up and running. So 6 months to a year and another 6 months to a year to start to get it live and then you fill your first cohort, right, which is also what we do. Again, a lot of it coming from a registered user base. And so if it's a 2-year program, this will typically fill over 3 years because most students take it because a lot of people do it at night. At least for the Masters, it will be a little bit different, I think, as we put more bachelors on. But you don't get to full productivity until, say, 3 years. You filled all the classes, right, in a 2-year program. So you're talking 5 years from start to full productivity. So as we try to land these new partners, we're looking forward and saying here's what we expect the revenue to be. It's how we're thinking about investment. Again, very large pipeline. Lots of interest right now. We can talk a little bit about some of the pricing we've done, changes we've done, to encourage that. But it's a very large opportunity that's super early. And I've been asked recently. We were out in New York. Jeff Maggioncalda, my CEO, and I were out last couple of days last week in New York. And one of the questions was, how do we measure that? It's really early. And how do we measure your success? And there's one answer you'd like to -- like it's early stage. We're filling cohorts. We feel really good about it. We can see things happening, but things take a while to close. I just described what happens. The answer is look for new logos that get announced in the next 2 quarters or don't. I'm telling you the pipeline is very big. Pipeline doesn't mean anything until pipeline closes. And so that's how to look at us. Look at in the near term, the relatively near term. Look at the degree programs you're looking at. Look at the quality of them. Look at how large they are, how substantial they are, because that is the beginning of this base. And that's what I look to, to see our success. Regarding -- so highest level, that's important because that's early in effect the answers to the first 2 questions, which were trending around students going back to school and some of the information we're seeing around universities or the community colleges and vis-a-vis the labor market. Again, as it relates to our business, like it had some effect, certainly, but it's nowhere -- in the big scheme of things, it washes out to nothing. We are so early in the space, and it's so important. This is about us building and figuring out with our university partners what the future trends are going to be, how they combine their content for degrees, how they monetize and think about their economic model, which is increasingly important as one might imagine. There's going to be fairly massive change in higher education, and a lot of the schools are getting very creative in how they think about it and how they leverage their assets. And so we're going to see a lot of new behavior in that space. So in the big scheme of things, the current enrollment trending, countercyclical, blah, blah, blah, yes, there's some effect in there, I'm sure, and probably our new degree students more than anything else. But I wouldn't -- we're not overly focused on it to say the least.

Yes. And then -- and maybe like a second part to this question, but it's just when you think about -- so based on -- you talked about that it's going to be -- these lands are going to be very important, right, in getting those degrees. So based on the visibility that you guys have today and in terms of thinking about how that business could ramp and the growth trajectory over time, anything to flag in terms of the growth? Like is this something where you could start to see a lot of these later on, where in out years, you could start to see an inflection? Or is this going to be more of a durable growth driver? Any sense? It's probably very early, but high-level color.

It's super early. In a decade, it's going to be our biggest business. It's the most durable business for -- and it's amazing. It's going to take time to build. But if you -- I think of it as everybody loves SaaS models -- or everybody wants to be a SaaS model because they get high multiples? Why? Because they're great recurring durable businesses. They deserve them in those cases. This is that and then some is what I believe. I believe we have a unique set of assets that lets us compete there. There are others certainly who can compete there, but it's an enormous market. And the relationships with the universities last forever. That might be too strong a statement, forever is a long time. But it's just as sticky as can be, right? And the reason SaaS is sticky, right, is because you put it in, you don't have to deal with the maintenance of it and you're running a business process on. To disrupt that business process is a lot of headache. So you have to have a real problem before you churn a SaaS player in your business. This, what we do is even more central to what they do. It's linked in with the channel of bringing them students, which is incredibly [ powerful ]. People underestimate the value of the channel. I would say people need to better understand our registered user base and really what that means for us. It's not the be all and end all, but being a channel is important. It makes us more important to content partners. Makes our economics substantially fundamentally materially different on the degrees side. It's very, very early business. But it's the most durable of all our businesses, and it's a tremendous model. I referenced -- and SaaS, the other part of SaaS, I think, it accentuates both the upside and the downside of SaaS. The upside on SaaS is the durability and the visibility, which is amazing. The model I described to you with the add-ons. Find the development, right, find the partnership or the degrees or add the new degrees, get it up and running 2 years ticking now, right? Fill cohort, fill cohort, fill cohort, 5 years. It takes a long time. It's tremendous visibility to us. So the visibility around that space over time as it gets to scale is it's already amazing. You can start to see revenue years ahead of time. The flip side of that, which is also accentuated, the downside is it takes a long time to build. So we're doing what we think are the right things to make this a large business. We're very hopeful we'll have some more successes to announce in the relatively near term. That's a big pipeline, and it's a long time to come. And that's how I'd look at that business, but it's super early so people can believe what they want to believe. It's the small minority of our revenue versus the other segments. And so think about the space is what I'd recommend. And we like it a lot, though, and it's worked because it's evolving. It's real work strategically. It's not simple.

Perfect. Yes. I know we're up against time here, but to sneak in one last question, maybe you did talk about the pricing change that you guys made. So I guess how -- can you talk about how university partners have perceived the announcement of a tiered fee structure? It seems like some others might have done something similar. So can you maybe like talk about how you guys might be differentiating and any early reads there?

Yes, sure. So a couple of things for context for everybody. Historically, we've charged 40% of the tuition for our university partners, right? So the student is their customer and they collect tuition and they historically gave us 40% of their tuition. I mentioned the OPM space, which is a different model, they do things differently. So there's reasons for this. They historically were charging 70%. People call them the take rate in the space. I don't like the phrase for what it's worth, but that's what people call it in the space. I think they brought some of their pricing down. I won't say I'm intimately familiar. We were at 40%. It's a different model, right? In the traditional OPM model, they produce the content for the school. So they tell you it's the white glove. Again, we're not super competitive. The white glove, they do it all, whereas Coursera makes you put it on their own platform. But it's a platform model where it's technology, it's not a bunch of services. So from a CFO standpoint, I like the model as we make it work. So the schools put themselves on the platforms. The -- so the idea behind the tiered pricing, what that was is we still start at the 40%, but at scale and the low end of the fee structure is $50 million of tuition. It drops down to 25%, and we did that for a couple of reasons. We were thinking about this before we went public, and so this has been in the making. We announced at ASU GSV, those of you not familiar, huge industry education conference in San Diego a few months ago. And we announced there this change. We did it, of course, having spoken to some degree with our current largest partners, and there's a reason we did it. So we did it for the existing base, which is the smaller of the 2 reasons, by the way, as they sought to expand more. We wanted to encourage them to have scale, right, within the university. Nothing is easier than adding to an existing customer. It's like people love NRR, back to our enterprise discussion, it's great. And it's future revenue, get them up to speed. They know how it works. They have one relationship. There's some efficiencies and economies of scale there with larger. And so it better reflected the economics. One of the advantages to us of the 40% is because we get so many of the new degree students for free from the registered user base, we can charge 40%. So I think in a lot of instances, and it's a different model. I want to be very clear, it's a different model, not apples-to-apples. But our pricing is lower than other people's costs, and that's what you need to know about that model. And so that was the existing base. They like it, it's great. We're trying to talk to them having discussions around more degrees and adding on. That was super important to us. More importantly is for the rest of the market that we're trying to close. And the way Jeff Maggioncalda, my CEO, describes it, I like, which is our existing partners, it was more, it was experimental. It was great. They were forward looking and you can teach all these people in especially these grad programs who could never come to campus because they're midway through their career. They have a job, they probably have a family, they're not uprooting like college students do. And so they were doing it as a hobby, which is a little too dismissive. But interestingly, like great, they were cutting edge, pretty nice. Now if you're a university and you're not looking at this as a core part of your business, your Board should have a conversation with the Chancellor. You have to be looking at this. So what the schools are looking at now is doing this at larger scale. They're not going to choose us every time. No, they're not going to choose us every time. They'll choose the OPMs, they'll do it themselves, they'll choose us in between. But this is a period where there's lots of these valuations going on. When you're looking at doing this at scale, you better believe you care about the overall cost. So the other and more important reason we did it is for adoption, especially adoption at scale. So that's what we were thinking when we did it.

Perfect. Awesome. Well, we'll leave it there. Ken, thanks so much for taking the time. Really enjoyed all the thoughts.

Yes. Thank you, Taylor. I appreciate it.

Perfect. And thanks to everyone listening in. Have a great rest of your day.