Udemy Sees Near-Doubling of Subscription Revenue in 2026 as Users Shift Online
Strategic Shift and Financial Performance Highlights
Udemy's recent earnings call provided a comprehensive overview of its strategic direction and financial performance for Q3 2025. The company has been focusing on accelerating its subscription revenue growth, which now makes up 74% of total revenue. This shift reflects a broader strategy to build a more durable business model that delivers predictable and recurring revenue.
CEO Hugo Sarrazin emphasized the importance of this transition, noting that the company is making significant progress in building a sustainable revenue stream. He highlighted several platform innovations, including AI learning paths, AI assistants, AI-generated assessments, and AI-assisted content creation. These features are designed to enhance user engagement and provide more value to both individual learners and enterprise clients.
In addition to these technological advancements, Udemy has launched new career-focused subscription offerings, such as certification and career journeys. A partnership with Pearson further expands the company’s ability to offer certifications, while the collaboration with Indeed has proven highly effective, with an average monthly conversion rate of job seekers to subscriptions that is 16 times higher than the company's average.
Financial Results and Outlook
The financial results for Q3 2025 were strong, with revenue reaching $196 million, surpassing the upper end of the company’s guidance range. Consolidated subscription revenue amounted to $144 million, reflecting an 8% year-over-year increase. The CFO, Sarah Blanchard, noted that operating expenses were $112 million, or 57% of revenue, marking a 400-basis-point improvement compared to the same quarter in 2024.
Looking ahead, the company expects consolidated subscription revenue to grow in the high-single digits for 2025. For Q4, total revenue is projected to be between $191 million and $194 million, bringing full-year 2025 guidance to $787 million to $790 million. The midpoint of this range suggests that Udemy Business revenue will grow by approximately 6% year-over-year, while Consumer revenue is expected to decline by 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. The company also expressed confidence in its long-term prospects, projecting that consolidated subscription revenue growth in 2026 will be closer to double digits and will account for roughly three-quarters of total revenue.
Segment Performance and Operational Efficiency
Udemy Business revenue was $133 million, with net new ARR of $7 million, resulting in a total ARR of $527 million. The Consumer segment generated $63 million in revenue, ending the quarter with nearly 295,000 paid subscribers. Subscription revenue in this segment increased by 43% year-over-year, making up 19% of segment revenue—a 400-basis-point increase from the previous quarter.
Gross margin improved to 67%, and 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 also repurchased 4 million shares under its $50 million stock repurchase program, signaling confidence in its long-term value proposition.
Analyst Questions and Management Responses
During the Q&A session, analysts raised various questions about the company's strategy, including the transition to consumer subscriptions, monetization of consumer revenue streams, and the sustainability of profitability. CEO Sarrazin discussed changes in digital marketing strategy, shopping cart optimization, and the impact of the Indeed partnership. He also mentioned upcoming ad monetization phases.
CFO Blanchard addressed concerns about the pipeline for Udemy Business, noting that the percentage of expansion deals within existing customers has significantly improved. She also confirmed confidence in delivering $93 million in 2025 and more in 2026, despite ongoing investments in AI and LLMs.
Analysts also probed into the sustainability of profitability and the impact of the subscription-first strategy on Consumer revenue. Management acknowledged short-term headwinds but remained optimistic about long-term growth and product differentiation.
Market Position and Future Prospects
Overall, the sentiment during the earnings call was largely positive, with analysts expressing interest in Udemy's subscription momentum, pipeline growth, and product innovation. Management maintained a confident tone, emphasizing strategic pivots and growth drivers. The focus on a subscription-first model and long-term value creation was evident, with a clear emphasis on operational efficiency and product differentiation.
Compared to the previous quarter, the management's tone remained confident but more focused on the subscription-first pivot and long-term value creation. Analysts continued to press for clarity on revenue impacts and profitability, highlighting the importance of sustaining growth amid evolving market conditions.
As Udemy continues to navigate the competitive landscape, its strategic investments in AI-driven capabilities, enterprise partnerships, and consumer-focused offerings position it well to deliver predictable, recurring revenue streams and capitalize on emerging workforce trends.
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