'Focus on profitability, not valuation': Way forward for edtech players in 2023

The year 2022 has been a rollercoaster ride for edtech players. Right from offline classes resuming to investors taking a step back and cost-cutting measures being put in place, it was a year of setbacks after possibly one of the best years that the sector witnessed during the pandemic.

As per ‘Tracxn Geo Annual Report: India Tech 2022’, edtech was one of the worst affected sectors in terms of funding. Funding in the edtech sector fell by 39 per cent compared to the same period last year as demand has slowed down. About 70 per cent of edtech funding in 2022 was made up of five $100+ million rounds raised by BYJU’s, Upgrad, LEAD School and PhysicsWallah.

Byju’s which raised $1.2 billion in 2022 from existing investors, accounted to almost 50 per cent of the total funding received in the edtech sector.

What's more is that the slowing demand coupled with the funding winter resulted in the layoff of over 9,250 employees in the edtech sector, a media report claimed. Firms such as Lido Learning, Byju's, Unacademy, and Vedantu fired more than 1,000 employees each in the year 2022, Moneycontrol reported.

Edtech firms: Making their way in India

Edtech firms in India boomed with the support of venture investments and increased screen time of locked-down students in the year 2020 and 2021. A report by RedSeer earlier this year highlighted that the online higher education and life-long learning market are expected to be worth $5 billion by 2025.

"Edtechs have successfully proved their mettle in the last two years by enabling quality education in times when offline counterparts were brought to a standstill. It further accelerated cost-effectiveness, user-friendliness, and accessibility, even across the remotest locations," Mayank Kumar, co-founder and managing director, upGrad told Business Today.

However, the year 2022 was challenging for the sector after it reported a slowdown in funding. Bengaluru-based data provider Tracxn showed that funding in the sector fell to a meagre $2.6 billion in 2022 from $4.1 billion in 2021, Economic Times reported.

"With just $2 billion in funding inflows, a prolonged funding winter, skyrocketing layoffs, and many growing companies in the sector shutting shop, edtech brands have suffered to sustain their revenue and growth," Manan Khurma, founder and chairman, Cuemath, stated.

Unacademy co-founder Gaurav Munjal took to Twitter to share that the funding winter is likely to get worse. "Winter will get worse. Get to profitability asap. And then grow from there. Stop all unnecessary spends. Focus on building great products and organic traction channels," he tweeted in November.

Edtech Firms: Way Forward

While the sector took a hit with schools and colleges resuming, adult learning continued its growth streak, according to players in the sector.

"The ecosystem is fairly big and we have seen the life-long learning or adult learning segment driving stronger career outcomes for its learners in terms of enhancing their employability quotient and fostering job opportunities," Kumar said.

"Now as we enter into 2023, for businesses, consolidations will continue to pivot the ecosystem for driving sustainability, as both digital and large offline businesses seek to achieve scale through inorganic movements," he added.

Apart from adult learning, international markets is being considered as one of the possible areas of growth. Either through acquisition or expansion, companies are eyeing the international markets.

Recently, edtech firm Simplilearn announced that it has acquired a US-based bootcamp education company, Fullstack Academy. The company said that the acquisition will accelerate its growth in the US and its global expansion plans, as per a report by YourStory.

Byju's co-founder Divya Gokulnath told PTI that the company will start focussing on building brand awareness overseas through new partnerships and hire 10,000 teachers for India and overseas business. "We have designed a path to profitability which we plan to achieve by March 2023," she said.

For upGrad, the upcoming year will also drive more attention towards the international student movement from India. "We have introduced new business lines in this FY that shall continue to amplify our growth not just in India but overseas," he added.

Experts believe that moving forward it will be important to hyper-focus on delivering better learning outcomes.

"Sustainability in terms of profitability and not valuation must become a fundamental tenet. The growth at the cost of enormous marketing spending, layoffs, and shrinking spending capabilities directly impact the company's fundamental stability. Edtech businesses must be cognizant of their bloated CAC (Customer Acquisition Cost) and shrunken LTV (Lifetime Value) as it will lead to further cost increases,” Khurma pointed.

(With inputs from Binu Paul)

Also Read: ‘It worked out well’: Byju's validates Messi deal in letter to employees post FIFA win