Shares of online education company Coursera (NYSE: COUR) jumped 29.9% during July, according to data provided by S&P Global Market Intelligence . The stock was actually up 50% for the month at one point before coming back down from its July highs. And the giant spike in price was catalyzed by the company's quarterly financial results.
On July 25, Coursera reported financial results for the second quarter of 2024. Revenue was up 11% to $170 million, and free cash flow hit $17 million compared to the negative free cash flow of $12 million in the prior-year period. However, investors seemed more enthralled by commentary regarding artificial intelligence (AI).
According to Coursera's management, over two million people have enrolled in generative AI courses and related materials. For perspective, the company only just launched its Generative AI Academy earlier this year, so this is a rapid adoption rate. That said, it is still a fraction of its 155 million registered users.
For context, Coursera stock was down roughly 60% year to date at the start of July -- investors were increasingly pessimistic regarding the prospects of the business. However, with modest growth in Q2 and promising adoption of AI courses, investors were quick to reconsider.
Were results really that good?
I'll readily admit that the sharpness of the gain for Coursera stock is a little surprising. After all, its Q2 financial results weren't overly impressive. Management had expected Q2 revenue of $166 million at most -- a number it beat by less than 3%. It was a better-than-expected result, to be sure. But a resulting 30% monthly gain is surprising.
Moreover, Coursera's management didn't raise its full-year revenue guidance -- it kept revenue guidance at $695 million to $705 million, which represents about 10% annual growth.
Considering that Q2 results didn't beat by much and that management didn't raise full-year guidance, this might explain why Coursera gave back some gains in July and has continued giving back in August.
What can investors expect now?
I believe Coursera stock trades at a reasonable valuation at less than 2 times sales . That's encouraging. Moreover, its market capitalization is only $1.2 billion and it has over $700 million in cash. With the business now generating positive cash flow, that's an interesting investing situation -- the downside seems limited.
Ultimately investors have to decide whether AI presents a long-term risk to higher education and online platforms such as Coursera. If it does, then it's likely best to avoid investing in companies like these, regardless of how much of a bargain they are. But if an investor believes AI doesn't present a long-term risk, Coursera stock could make an intriguing buy given its strong financial situation and its ongoing growth.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0