Udemy outlines near double-digit subscription revenue growth for 2026 amid accelerated consumer pivot

Earnings Call Insights: Udemy (UDMY) Q3 2025

MANAGEMENT VIEW

* CEO Hugo Sarrazin highlighted a strategic acceleration in subscription revenue, stating consolidated subscription revenue grew 8% year-over-year and now comprises 74% of total revenue. Sarrazin emphasized, "We are building a more durable business that delivers predictable and recurring revenue that creates more value for all stakeholders." Udemy Business revenue grew 5% year-over-year, generating $7 million in net new ARR, with the Consumer segment surpassing the full-year paid subscribers target and subscription revenue within Consumer up 43% year-over-year. The CEO described ongoing platform innovation, noting, "Our platform features AI learning path, AI assistant, AI-generated assessment, AI-assisted content creation and MCP capabilities."
* Sarrazin announced the launch of career-focused subscription offerings, including certification and career journeys, and noted a partnership with Pearson to expand certification opportunities. He also referenced the impact of the Indeed partnership, stating, "We are seeing an average monthly conversion rate of Indeed job seeker to subscription that's 16x better than the Udemy average."
* CFO Sarah Blanchard stated, "Third quarter revenue of $196 million landed above the high end of our guidance range," and reported $144 million in consolidated subscription revenue, an 8% year-over-year rise. Blanchard shared, "Operating expenses were $112 million or 57% of revenue, a 400-basis-point improvement compared to the third quarter of 2024."

OUTLOOK

* Blanchard projected, "We expect our consolidated subscription revenue for 2025 will grow in the high-single digits year-over-year." For Q4, total revenue is expected between $191 million and $194 million, bringing full-year 2025 guidance to $787 million to $790 million. The midpoint implies Udemy Business revenue growth of approximately 6% year-over-year and a Consumer revenue decline of about 9%.
* Adjusted EBITDA for Q4 is expected to range from $18 million to $20 million, with full-year 2025 guidance raised to $92 million to $94 million. Looking ahead, Blanchard stated, "We believe the consolidated subscription revenue growth in 2026 will be closer to double digits and will account for approximately 3/4 of total revenue."

FINANCIAL RESULTS

* The company reported third quarter revenue of $196 million. Subscription revenue reached $144 million, representing 74% of total revenue, up 600 basis points from last year. Udemy Business revenue was $133 million, and net new ARR was $7 million, resulting in $527 million in total ARR.
* The Consumer segment generated $63 million in revenue, ending the quarter with nearly 295,000 paid subscribers. Subscription revenue in this segment increased 43% year-over-year, now making up 19% of segment revenue—a 400-basis-point increase from the prior quarter.
* Gross margin improved to 67%. Operating expenses were $112 million. GAAP net income was approximately $2 million, compared to a loss of $25 million in Q3 2024. Adjusted EBITDA reached $24 million or 12% margin, up from 6% last year. The company ended the quarter with $372 million in cash and marketable securities and generated $12 million in free cash flow.
* Udemy repurchased 4 million shares under its $50 million stock repurchase program.

Q&A

* Ryan MacDonald, Needham: Asked about accelerating the transition to consumer subscriptions and updates on monetizing consumer revenue streams, including advertising. Sarrazin detailed changes in digital marketing strategy, shopping cart optimization, and highlighted the Indeed partnership and upcoming ad monetization phases.
* MacDonald followed up on Udemy Business pipeline and renewals. Blanchard responded that "the percent of that pipe that is expansion deals within our existing customers, that has meaningfully improved over the past quarter."
* Yi Lee, Cantor Fitzgerald: Asked about L&D budgets and AI ROI. Sarrazin noted, "L&D teams are being asked to do more...and at the same time, they're being told to do with less. So there is pressure."
* Lee queried the sustainability of profitability and ARR growth. Blanchard confirmed confidence, stating, "We will deliver -- we're on pace to deliver about $93 million for 2025. We will deliver more than that next year, but we are investing in really further differentiating our offering in the world of AI and LLMs."
* Josh Baer, Morgan Stanley: Asked about 2026 EBITDA expectations and investment allocation. Blanchard explained increased investment in product and partnerships, "really further differentiating in a world now that is AI and LLM."
* Stephen Sheldon, William Blair: Clarified ARR growth and Consumer revenue stabilization. Blanchard said the decline in Transactional revenue would be overtaken by subscription growth mid next year.
* Jason Tilchen, Canaccord: Asked about enterprise adoption of AI Role Plays and monetization. Sarrazin discussed custom use cases and upcoming tiered pricing for AI Role Play.
* Nafeesa Gupta, BofA: Asked about instructor churn amid lower revenue shares. Sarrazin emphasized engagement with instructors and new monetization sources like coaching and cohort work.
* Devin Au, KeyBanc: Asked about the UB large customer pipeline versus net adds. Blanchard attributed developments to expansion dynamics within the existing customer base.

SENTIMENT ANALYSIS

* Analysts' tone was largely positive, expressing interest in subscription momentum, pipeline growth, and product innovation, with some probing on profitability sustainability and investment allocation.
* Management maintained a confident tone during prepared remarks and Q&A, repeatedly highlighting strategic pivots and growth drivers. Sarrazin's statements reflected optimism about market positioning and future growth.
* Compared to the previous quarter, management's tone remained confident but more focused on the subscription-first pivot and long-term value creation, while analysts continued to press for clarity on revenue impacts and profitability.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for consolidated subscription revenue growth in 2026 shifted to near double digits, compared to a focus on high-single-digit growth in 2025 in the previous quarter.
* Management reiterated acceleration of the subscription pivot, with Consumer segment subscription revenue now 19% of segment revenue, up from 15% in the prior quarter.
* Gross margin remained at 67%, while operating expenses as a percentage of revenue rose slightly from the prior quarter. Adjusted EBITDA margin decreased to 12% from 14%, and GAAP net income declined from $6 million to $2 million.
* Analysts continued to focus on the effects of the subscription shift, profitability, and Consumer revenue stabilization. Management's confidence in long-term growth and product differentiation remained consistent with the previous quarter.

RISKS AND CONCERNS

* Management acknowledged pressure from downsells on COVID-era contracts and ongoing go-to-market team transitions, but expressed optimism for net dollar retention stabilization in Q4.
* Blanchard highlighted the short-term headwind for Consumer revenue growth due to the accelerated subscription-first strategy, while reiterating the compelling unit economics of the model.
* Analyst concerns centered on profitability sustainability, instructor engagement amid revenue share changes, and timing of Consumer segment revenue stabilization.

FINAL TAKEAWAY

Udemy management emphasized the accelerating transition to a subscription-first model, with subscription revenue now comprising nearly three-quarters of total revenue. The company projects high-single-digit subscription revenue growth for 2025, with 2026 guidance indicating a near double-digit pace and continued focus on operational efficiency and product innovation. Strategic investments in AI-driven capabilities, enterprise partnerships, and consumer-focused offerings position Udemy to deliver predictable, recurring revenue streams and capitalize on evolving workforce trends.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/udmy/earnings/transcripts]

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