Open Learning released their annual report. A quick skim through and it's not looking great.

Revenue was down 9.7% to $3.167M

Despite modest reduction in expenses, net loss for the year was $5.6M vs $6.7M pcp

Cash on hand is $2.2M with a cash outflow from operating activities of $5.4M

A capital raise will be required in the near future

Very modest growth in SaaS ARR, SaaS customers, SaaS revenue

Modest falls in Program delivery revenue, Gross sales, Group revenue

Management seems to be pivoting to the use of "AI" and "ChatGPT". A true use case or a redflag? Management are not promotional but with a capital raise on the horizon I'd say it's the latter. OLL continues to be a growth company struggling to grow and burning a lot of cash along the way. Until they show some traction and an ability to self-fund I can't see this being investable.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02648784-6A1142874?access_token=83ff96335c2d45a094df02a206a39ff4

OpenLearning has commenced a strategic review of its business after being approached by interested parties, appointing IBIS Capital to provide advice on “maximising shareholder value through this process”.

The company has indicated there are no assurances that the company will pursue a transaction.

The statement includes a quote from CEO & Managing Director Adam Brimo where he  said: “OpenLearning is one of the largest and most recognised lifelong learning platforms in Australia and Southeast Asia, enabling over 250 education providers to deliver high quality courses to over 3 million learners. OpenLearning is well positioned to continue delivering organic growth and this process will explore all options for achieving sustainable growth and supporting our clients while maximising shareholder value.”

Interestingly, at least from my perspective, that section on shareholder value is hard to read. This one has been tough to continue to follow.

A friend of mine is in learning development – in an internal role – and he has questioned my faith in this one. Will be watching with interest to see what, if any, changes are made.

Appendix 4E Preliminary Final Report

Open Learning released their Preliminary Final Report today for the year ended Dec 31^st, 2021.

Business Highlights

Platform SaaS customers increased by 23% to 205

The company’s push into Program Delivery segment comprised two programs delivered in partnership with top institutions:

-The UNSW Transition Program Online (TPO), a four month direct entry program for prospective international students

-The CS101* (computer science 101) micro-credential designed in collaboration with leading tech companies

Revenue from TPO exceeded investment within the first year of operation

The first intake of TPO was highly successful with 86% of students receiving an offer from UNSW for either a degree or diploma. Five further intakes are scheduled for 2022 and the goal is to have more Universities, beyond the current 6, recognise the program.

Alchemy Tribridge Sapphire Pty Ltd acquired a 17% stake in OLL via a capital raise

Platform Subscription revenues and Program Delivery revenues – Platform Revenue, rose 170% to $3.045M

Overall group revenue (which deducts shared revenue with education providers) increased 86% yoy while cash receipts improved by 43% to $4.56M

Financial Highlights

Revenue up 86% yoy to $3.5M

Expenses rose 71% driven mainly by investments in program and service delivery

Loss up 19.6% to $6.7M

Cash of $4.6M plus an additional $1.58M post reporting period

Net assets of $4.1M

Cash receipts up 43% as a result of upfront payments from learners and SaaS customers

Cash outflow from operating activities of $6M for the year

Thoughts

I was originally attracted to OLL based on the business model, tailwinds and management team; however, I was too early and should have monitored from the sidelines. OLL showed some impressive growth but still has a long way to go. With a $6M cash burn for the year and ~$6.2M cash on hand another capital raise is likely.

*I’m enrolled in OLLs CS101 course but due to personal circumstances have been unable to complete it. I have until Oct 2022 to complete the course and plan on returning to it when I have more time. As someone who’s spent a lot of time learning over the past 2 years I’ve been impressed with how CS101 has been delivered. There are still a few bugs that need to be addressed (mainly completed tasks not being shown as completed) but consider I was part of the first intake. CS101 is advertised at ~$1,500 but they discounted this to $1,000 and further to $500 as the course start date approached. If anyone has any questions around CS101 I’m happy to discuss in the forum.

Rights issue originally supposed to close 24 December (what a shocker of a close date with most people having other things on their mind that time of the year) has been extended until 14 January.

Like all of these things if you don't participate you suffer dilution.

Recent insto stakes have given me some faith, however, this one remains on a tight leash and is still one of my lower conviction holdings. While this one is a relatively small holding for me, albeit one that has been cut in half, I will be participating.

A key moment in Openlearning's story with the introduction of vulture capitalists to the register. They are now the largest shareholder of the company. The firm takes a position in OpenLearning of up to 19.9%. The total capital raised of up to $5.96 million through the placement to ATL and rights issue will be used to position OpenLearning for a step-change in growth.

The material terms and conditions of the subscription agreement with ATL are set out below:

• In consideration for the payment by ATL of $2.9 million, the Company will issue:
• 31,182,796 shares to ATL at an issue price of $0.093 per share;
• 2,150,537 shares to certain nominees of ATL at a nil issue price per share (ATL will not be entitled to these shares and will not acquire a relevant interest in these shares by virtue of their issue to ATL nominees); and
• 6,422,908 options (exercisable at $0.093 on or before 30 September 2022) at a nil issue price per option;
• for so long as ATL has a relevant interest in at least 10% of the issued shares in the Company, ATL is entitled to appoint one person nominated by ATL, and acceptable to the Company acting reasonably, as a non-executive director of the Company; and
• ATL will provide an undertaking to the Company, pursuant to which it will undertake that it will not acquire a relevant interest in excess of 19.9% of the issued shares in the Company as a result of its participation in the rights issue and to the extent that an application by ATL would result in ATL acquiring a relevant interest in excess of 19.9%, its application will be reduced to the extent required to ensure it holds a relevant interest of no more than 19.9%.

Basically, this agreement can either work well or be disastrous for shareholders. The people who are making calls have M&A experience. My feeling is that the company is positioning itself for a takeover offer. It is very similar to another classic tech stock $DTS (dragontail system) acquired by Yum Brands. Eldrige Capital bought 20% of Dragontail and made a 50% gain on the investment (1/2 bagger).

I have a sneaky feeling the vultures are going to pitch the company to Coursera and have it sold for $100M (that's if the pitch works). Otherwise, it could be like dragon tail with a 50% capital gain = $20M sale. Really hope the buyer is willing to pay $100M for the business. Hence, the company from my perspective no longer in the hands of Adam but a takeover target for an educational institution.

Hence, the only thesis that makes sense is that someone is willing to pay a multiple to acquire the business. All "we" (investors) should focus on is buying at a low valuation and fingers crossed the company gets acquired. Not ideal, but I'll take it.

OpenLearning (AAX:OLL) has secured a strategic investment from a global tech-growth firm and announced a rights issue

Investment Highlights:

- Alchemy Tribridge Sapphire (‘ATL’ or ‘Alchemy Tribridge’), an investment group experienced in driving returns in technology businesses, will take a position in OpenLearning of up to 19.9%

- ATL will invest $2.9 million in a placement, priced at $0.093 a share, and also be issued an additional $0.6 million worth of options with a strike price of $0.093 a share and an expiry date of 30 September 2022

- ATL will support OpenLearning in the next phase of growth to capture a greater share of the lifelong learning market with the appointment of Mr Ben Shields, one of the Founding Partners of ATL, to the Company’s Board on completion of this placement

- Eligible OpenLearning shareholders will be able to invest alongside ATL through a nonrenounceable rights issue at the same price per share to raise up to $3.06 million in new capital. ATL is expected to participate in the rights issue, providing an additional $0.48 million in capital

- The total capital raised of up to $5.96 million through the placement to ATL and rights issue will be used to position OpenLearning for a step-change in growth

This $0.093 price represents a 3.33% premium to the last close price.

This will make ATL the largest shareholder on OpenLearning’s register.

Adam Brimo, CEO of Open Learning, appeared on Mark Tobin and Phil Muscatellos' podcast Talking Companies. Adam provides some unique insight into the UNSW contract, competitors, strategy, competitive advantage and more. It's a great episode for anyone interested in the company.

https://play.acast.com/s/03c07c25-68cc-5cf6-96da-d93d8a611701/618dadfd89bd7300139b27b9

Openlearning recently released the quarterly report. Here is a summary of the main points:

Program Delivery

• A vital cog in their growth strategy for FY22.
• The initial UNSW TPO program netted $409K in program delivery revenue. Assuming the range per student is $6K - $9K the first cohort ranged between (45-68) students. After the pilot, the TPO is now adopted in 6 universities; 4 in the UK, 1 in NZ (I think University of Auckland) and 1 in Aus (UNSW).
• August and September intakes attracted 73 students in total which resulted in $847K of cash but they had to pay the license fee of $550K to UNSW. If you do the math, it would mean the average revenue per student was $11.6K which is higher than $9K. However, you have to deduct the UNSW license and the actual revenue per student is $4K. UNSW took a 65% cut in the program fee.
• Hence, Openlearning must find a way to increase students for the program to run profitably. Otherwise, the main beneficiary is the university.
• The next program they are starting is Computer Science 101. It has attracted 50 learners paying ~ $1,500 = $75,000 which does not affect revenues. Although, it is an interesting program for big tech companies like Microsoft, Alibaba and Canva. I also find that Australian tech companies can benefit by pooling talent from this program.

Platform Subscription

• Interesting note where the number of SaaS grew to 196 but the ARR decreased to $1.41M. In all honesty, these numbers are peanuts and they must find a way to grow to $10M ARR quickly. They can't stay in startup land forever.
• One strategy Openlearning are implementing involve usage-based pricing. If successful, it would drive revenue per user without adding incremental cost. Although, my spidey senses tell me that they would need sales support staff which is an added expense.

Overall, they are still a startup clawing through contract negotiation to win customers. The founder is still there which is a big plus. The company gaining traction with high profile names like Canva & Afterpay to support these learning programs -> necessary for the tech industry.

From an ethical standpoint, I argue they are quite honest with what they present and fit inside ESG frameworks. However, an ARR of ~ $1.5M growing 10% QoQ does not cut it in public equities. Although, I am surprised that it is not a $100M market cap company maybe they need to add buzzwords or set up a cryptocurrency course to increase the valuation :D It's still a high-risk investment as it requires exceptional execution to generate ARR. I am happy to back them but like before, it's not for everyone. It's very much VC investing.

After considering the risks, current execution and previous assumptions on revenue growth/pricing etc... The thesis must be reworked. 

According to Openlearning, they have 4 revenue drivers:

• UNSW Transition Program Online (UNSW TPO)
• OpenCreds (lifelong learning micro-credential framework)
• SaaS contracts with large customers like Afterpay and UoW. 
• Build their own courses (vertically integrate). The most interesting pilot is their version of Computer Science 101. It would contribute more margins but success depends on learner adoption. It's also part of the Opencreds framework.  

The very nature of a startup means that the business model can quickly change in a matter of months. They can pivot fast based on customer preference.

• Since the last update - over 5 months ago, we saw Openlearning shift away from Marketplace revenues and into platform SaaS revenues. 
• Marketplace revenue involved successful recruitment of learners to accredited courses in the Openlearning platform. It was not only costly but the likelihood of converting learners to paid customers is not profitable without brand equity. 
• Resources are now geared towards SaaS contracts but more importantly partnership programs like the UNSW TPO. The aim is to scale the same program to other universities. Hence, more scalable program delivery model than the timing consuming & resource-intensive traditional silo model. 

The original thesis involved revenue growth through platform revenues with a slight influence from the UNSW TPO. I did not consider that multiple intakes & multiple universities could multiply revenues YoY. To highlight why it is meaningful; consider the number of students for each intake ~ 100 you are looking at ~ $600k per intake (Openlearning's revenue share is between $6k to $9k per student. Let's assume the lower part of guidance = $6K). Given 3 sessions we expect $1.8M but since they have the capability to offer the program via 5 sessions, it would be $3M (from one university). 

• That is a bear case scenario where the program struggles to gain traction and remain stable at 100 students.
• Openlearning have rolled the same program internationally to 5 other universities from UK and NZ. Therefore, if you make the same assumptions that would mean $15M of revenue. 
• UNSW TPO could significantly generate revenue growth because they transitioned the program delivery away from a white-labelled silo solution to a platform. The program only needs to be build once and the cost to ensure functionality is maintenance cost.  

The revised thesis: Openlearning can grow revenues quickly through program delivery partnerships. Hence, there is a pathway for meaningful revenue growth using their existing customers.

The market is grossly undervaluing the revenue potential despite the execution risk. Happy to double down, but it's not for everyone... 

Open learning laid out their strategy and their focus for the next 2 years. Ironically, being an online digital education platform, lockdowns have dented their revenue growth. They serve large universities (Openlearning's key customers). 

Put my hand up and admit that I made a big mistake going too early investing in Openlearning. Their revenue growth is too reliant on lockdown lifting. In the worst scenario for Openlearning is the case where lockdowns are lifted but then follows a sharp inflow of vaccinated patients succumbing to covid. Governments will make the risk-averse call and lock us down again. The universities lose out on revenue and cut expenses. 

Luckily, Openlearning has enough cash to survive till the next financial year. Although, if the share price remains low they will struggle to raise capital without diluting a lot of shareholders including themselves. Key executives own a fair amount of shares. 

Overall, it's still a startup and its success/failure is entirely based on execution. Could they grow fast, raise capital and then do the hard part of making money without using outside capital? 

Recent investor updates as some other straws have pointed out are showing good growth, there is also a reasonable level of cash holding too.

Couple of things that make me wonder. Sprouting the size of the market in billions when your revenues are in single digit millions. This either says you have massive scope to grow or says you are a mere minnow and likely to be swallowed. Either way, I think it means there needs to be expansion soon.

The other is CS101.com offering. It looks like a solution seeking a problem. I haven’t had a chance to check how much they invested in this or the projections. One thing I do know after looking at the site for a few minutes is this was not inexpensive.

This is a left field announcement that have me guessing on the revenue potential. 

The key term is this: 

• The agreement has an initial term of one year with SaaS fees payable based on the number of learners in Afterpay’s courses. No minimum fees are payable under the agreement.
  • Who will take part in those courses? Would it be Afterpay employees, merchants or customers?
  • Afterpay has more than 75,000 merchants and 13 million active customers globally.
• Adam Brimo adds
  • OpenLearning’s experience gained over many years working with top tier education providers to deliver high quality online courses provides the scale and track record to enable leading companies such as Afterpay to deepen their relationships with their customers. The customers could be merchants or consumers.  

The SaaS hosting fee for a corporate like Afterpay. Afterpay made no announcement on their end. This is a very interesting move from Afterpay to help local startups like Openlearning.  

• A$26,400/year (tiered pricing available for larger deployments). It will be a large deployment depending on how many learners are on the platform. 
• 5,000 maximum learners (I wonder what the pricing would be for 12M learners? :D)
• Learning design (from $1,100/day)

Institution Pricing Agreement

Found this cheeky pricing proposal from Openlearning to Higher Education Providers. I assume the document was sent December 2019 as they had 1.7m students in the platform. 

Key terms 

• Minimum 3 year term contract with locked pricing 
• Platform (Pricing per student) 
  • 0-1000 students - $9.90 per student (incl.GST) (The starting cost is $9,900 p.a. (incl.GST) for the first 1,000 licenses)
  • 2500 students - $8.80 per student (incl.GST)
  • 5000 students - $7.70 per student (incl.GST)
  • 10,000 students - $7.15 per student (incl.GST)
  • Expansion Portals are charged at $5,500 (incl.GST)
  • Normally the annual SaaS license fee is due upfront; however, Openlearning are offering the option of quarterly payments instead. 
• Services
  • Learning Design
    • For 3 days = $3,750 + GST
    • Daily pricing = $1,375 (incl.GST) 
  • Graphic Design
    • Daily pricing = $1,375 (incl.GST) 
  • Multimedia Production 
    • Daily pricing = $1,750 (incl.GST) 
• Marketplace (Learner Recruitment)
  • Openlearning takes 30% share of revenue per enrolment. That's if they successfully recruit learners into courses.  
• Currently, Openlearning has 167 customers. Receipts for the previous quarter was $737K broken into  
  • Platform - $380K
  • Learning services - $106K 
  • Marketplace - $251K
• I did an Excel calculation on the platform revenues based on the institution pricing and got this: 
  • Assume 1st year annual licence revenue of $9,000 = $2,500 quarterly. Then multiply by 167 platform customers and you get $375K per quarter. It is very close to the actual platform revenue ($380K).
  • I understand that I am wrong as some customers either pay upfront or pay quarterly. Also, we are not sure if new platform customers are institutions but instead a combination of different customers with different pricing (Very likely). 

Assumptions 

• Let's take the platform revenue assumption to the max where each institutional customer have 10,000 students on the license. It would mean ARR = $71,500 which is $17.8K quarterly corresponding to $2.9M quarterly revenue for 167 platform customers. An 8 fold increase in quarterly revenues. The calculation assumptions:
  • Assumes all 167 current customers can manage 10,000 students each. 
  • Assumes all 167 customers are institutions (obviously wrong, but we are not given a breakdown)  
• Marketplace revenues - Openlearning takes 30% cut for enrolling students. Last quarter it was $251K. There were 4.41M- 4.238M = 172K new enrollments for the quarter.
  • Assume Openlearning nets $250 per enrollment for 1K enrollments gives $250K for the quarter. Very low digital marketing penetration rate (0.6%).    
• Learning services 
  • Very rough maths show that new customers would have requested learning service fees. 24 new customers for the quarter * $3,750 = $90K very close to the actual amount for the quarter. 
  • So I assume when a new customer (higher education) come on to the platform, they will request learning services. 

Guestimating 

• Looking at my last year valuation I forecasted $20M in 2025. 
  • With the latest information, the pricing metrics assume a 5% QoQ growth on total number of customers. That would be 443 customers by end of 2025. I took the screenclipping up to end of 2024, otherwise I would squash the text making it hard to read.
  • I also randomly added numbers in the orange cells for sensitivity analysis.      
  • Regardless, my forecast is very conservative, Openlearning has grown faster than 5% QoQ, however they are approaching the TAM for universities. By their estimates, there is a total of 300 universities/high education providers in Australia and Malaysia. My forecast of 443 by 2025 assume moderate penetration into new education markets like VET, Corporate and Industry Associations.    
• Thanks to the institution pricing document, investors have a pricing framework to forecast revenues. I will be wrong with the forecast but I can atleast pinpoint where my errors were as oppose to guessing. 
• The pricing document are for insitituion customers, and as you can tell from Openlearning's pricing structure in the screenshot below they have; Individual, Team, Enterprise and Institution. These are the questions I would ask before making future forecasts:
  • How many of the 167 customers are individuals, teams, institutions and Enterprise?  
  • In the pricing structure for institutions, are majority of them under 1000 students and do they have capacity to reach 10,000 quickly? 
  • How many insitutions opt in for the expansion portal?
  • What percentage of new enrollments come from Openlearning's marketing efforts and what is the typical enrollment fee a student pay?  
  • Have all new customers opt in for Learning Services ($3,750 for 3 days)?  

Finally, I don't know why I spent a lot of time trying to predict revenues for an early stage company. My reason is that there aren't many brokers covering the company and the revenue uncertainty is very high. However, the payoff could be huge if you get semi close with the forecast. I did not include the revenue agreements with UNSW and UQ, will have to aggregate them and tally up to make the final forecast.   

This is my understanding of how the program works: 

• The new transition program is 4 months and targets international students who want to study at UNSW. 
• The program is now delivered digitally using the Openlearning platform. It was originally, in-person but now thanks to COVID, it is digital. 
• Openlearning is expected to net $6k - $9K per student after paying fees to UNSW Global.  
• The program starts on 1st March 2021 and ends 1st March 2026 (this is the 5-year agreement)
• The really interesting part is that "OpenLearning will be responsible for undertaking the process of enrolling eligible students in the Transition Program, including taking payment of all fees payable by eligible students for delivery of the Transition Program". So what that tells me is that Openlearning will have to spend more money to increase staff. UNSW Global is letting Openlearning take care of everything. That's why Openlearning did the $6M capital raise as $1.5M will be spent on working capital.
• Here is where it gets juicy for shareholders 
  • On their slide deck, they showed that around 440K international students enrolled in 2019, now in August 2020, it is 400K. Surprisingly, I was expecting enrollments to fall further. This is the total market. 
  • From the Openlearning slide deck, the top 10 universities had around 196K international students in 2019. UNSW had 24,852 international students last year.
    • In 2018, it was 23,148
    • In 2017, it was 20,204      
    • In 2016, it was 16,686 
  • UNSW has historically grown international students, and I believe post-COVID, it will grow steadily. On average, roughly 2K more international student come every year. 
  • Applying this to Openlearning, they get revenues when an international student enrols in the New transition Program. After 4 months, they can study at UNSW. 
    • If you take the really bearish case assuming Openlearning can attract 200 international students on average per year. That would mean revenue = $6K (per student assuming the lower number) * 200 students = $1.2M in revenue
    • If you take the base case, assuming Openlearning can capture 400 international students on average per year. That would mean $6K * 400 = $2.4M in revenue.
    • If you take the bull case, assuming Openlearning capture 600 international students on average per year. That would mean $6K * 600 = $3.6M per year. Instead of $6K if it was $7.5k that means $4.5M per year.   
• I think enrollments would start at around 100 international and end up growing in the next 5 years. On average, it could end up being the bull case.  
• This is a material contract for Openlearning as any sort of outperformance in enrollment uptake will drive revenues. 
• Although, in saying that COVID would have made a huge dent on the international students number across the major universities. We are unsure what the current enrollments are and we have to wait for the annual reports across universities, especially UNSW. 
• The market is currently pricing the company at $28M market cap and before the announcement, it was $23M. So the market believes the contract is worth $5M to the business. In other words, I think the market is pricing the contract correctly. Hence 23% gain in share price make sense.    

Thesis

•3 very passionate and driven founders – Brimo, Collien and Buckland – own 4.6%, 2.6%, and 3.6% for a total of 10.8% ownership

•Founders possess sizable teaching experience (practical and theory), strong tech skills with an interest in AI (2 software engineering degrees), entrepreneurial skills and traits of intelligent fanatics

•Competitive advantages

-          Serve more flexible underdeveloped markets than competitors1 SEA (OLL) vs NA (Coursera & edX) vs EU (FutureLearn)

-          Little-to-no competition in SEA (south-east Asia)

-          First scalers (still in progress)

-          Potential for strong network efforts

-          Potential for sticky customers/high switching costs

-          Possess economies of scale2

-          Strong company culture, vision and values

•Tailwinds

-          Covid-19/international travel restrictions/lockdown3

-          44% of jobs could be automated with existing tech – need to upskill

•Disruptive4

•Global addressable customer base (current focus is SEA)

•Serves multiple markets

•Relatively unknown with minimal interest from funds

•Forecast5 EV/Sales 2.55x; trailing 7.2x

•ARPU $377

Concerns

•Founders have minimal experience running a large company

•$1M cash burn/quarter

•Are tailwinds strong enough to push the online learning trend?

Summary

With close to a million in cash burn per quarter and 6 quarters of funding left I believe strong tailwinds, first scaler advantage and most importantly a very passionate founder led company will overcome short-term hurdles to ensure long-term success. It is possible a capital raise will be required in the future. I would sell if significant, continued revenue growth has not been achieved and/or cash flow breakeven was not in sight 6 quarters from now.

Disclosure: I hold a position in OLL.
 

Notes

1 Mr Brimo states most developing countries are lucky they haven’t made significant investments in traditional education compared to developed countries. Traditional markets have spent a lot of money on existing offline educational infrastructure and are reluctant to change even when they know change is good. Developing countries have less invested in traditional infrastructure (sunk costs), are therefore more flexible and can go straight to what’s best – they can embrace ideas for online learning that work.

2 Economies of scale are also passed along to customers (e.g. University) by adopting OLL platform. Customer can target a larger customer base with cost per student decreasing the more they enrol. Traditional classrooms are limited by physical space online are not. I believe this will force more institutions to join OLLs platform (a future inflection point), create their own or risk being left behind competitors.

3 Victoria University’s Mitchell Institute models show Aus university sector faces cumulative loses of $19bn over the next 3 years due to loss of international students. International university students’ fees are twice that of an Australian student. Lockdown has forced educational institutions to consider new ways of delivering material to both domestic and international customers. I believe this will speed up the transition to online learning.

4 Current platforms, competitors and teaching practices are very one directional. Teacher disseminates info to students through lectures, videos or documents. “Real learning” happens from our experiences, interactions between students, group work, and practical application of the learning. Lectures where lecturer just stood up and taught – not that memorable. OLL is designed to bring those (good experiences) online and go against the trend that online learning is just ticking boxes/boring.

5 March Q rev = $720, June Q rev = $945. Assuming continued linear growth of 131% ($945/$720); Sep Q rev = $1,237, Dec Q rev $1,622. Yearly rev to Dec 2020 of $4,524,000

OLL - OpenLearning

Competitors

OLL views massive open online course (MOOC) platforms as its primary indirect competitor. OL Group’s primary competitors offering MOOC platforms are Coursera, Udacity, EdX (all NA) & FutureLearn (UK).

A few things set OpenLearning apart from its competitors:

•OpenLearning is non-exclusive and available to all education providers globally

•OpenLearning uses (predominately) a SaaS model versus revenue share

•OpenLearning takes an active, project-based, more social learning approach versus competitors more passive approach (think reading documents, watching videos)

Barriers to entry:

•Cost of developing a similar platform

•Establishing a consumer marketplace

•Establishing a large enough user-base to gain economies of scale and network effects

•Building a reputation with top tier universities

•Sector experience

These are not insurmountable barriers to entry but because OLL is the first to scale and as they develop network effects it will be harder and harder for competitors to threaten them (think Facebook). They will need to maintain a high-quality offering and grow revenue sufficiently to achieve this.

If we are skeptical of OpenLearning’s claim it has no competitors in South-East Asia (SEA); here is a brief look at other possible competitors in the education sector.

Other ASX-listed online education providers

IEL

$4850M

Engages in student placements internationally, low mgt ownership. Opinion: not a competitor in online education

GEM

$673M

Operates 492 educational childcare centres in Aus and Singapore, low mgt ownership. Opinion: not a competitor

3PL

$146M

Global online education to schools covering math, spelling, reading, highly paid CEO, possible liquidity issues, low mgt ownership, Mathletics & Reading Eggs etc Opinion: strong competitor in school aged sector & could be incredibly hard to displace

KME

$50M

K-12 online tutoring internationally, franchise model trying to transition to online – could prove challenging as it puts them at odds with frnchsees. See AlphaAngle’s straw. Opinion: disadvantaged competitor

AKG

$31M

Au+Singapore, CEO 14%, lots of recent buying on market, Campus based and no mention of online learning – not a significant competitor

SIT

$22M

Good mgt ownership, illiquid?

RDH

$27M

Highly paid CEO, poor mgt ownership, recent cap raise

ICT

$19M

IPO 02/18, good mgt ownership

UCW

$11M

Liquidity issues, good mgt ownership

8VI

$24M

Liquidity issues, niche Singaporean educator, not really competitor

Comparing Janison Education Group (JAN) vs OpenLearning. JAN listed Dec 2017; OLL listed Dec 2019 (founded 2012).

Janison Education Group vs OpenLearning

JAN

$79M MC

CEO $441,690

Non-Exec Directors ~$180k avg

OLL

$30M MC

CEO $268,340

Non-Exec Directors ~$35k avg

Management

Category - Winner

Experience - Janison Education Group

Passion - OpenLearning*

Energy-  OpenLearning

Intelligent Fanatic - OpenLearning*

Diversity - OpenLearning

M/F ratio - Tie

*I’ve only been able to find one video of JAN CEO Wayne Holden speaking – small sample size
 

Glassdoor Reviews

Janison Education Group

13 reviews 2.5/5

OpenLearning

4 reviews 4.2/5

Career Opportunities

Tie

Positive Business Outlook

Tie

Overall Rating

OpenLearning +1.7

Compensation & Benefits

OpenLearning +0.7

Work-life Balance

OpenLearning +2.5

Senior Management

OpenLearning +0.5

Culture & Values

OpenLearning +1.8

% Recommend to a Friend

OpenLearning

CEO approval

JAN n/a OLL 100%

JAN review red flags

Jan 2018 – states high staff turnover

Jan 2018 – poor review of leadership

Multiple – long work hours

June 2017 – poor review of management

May 2017 – long work hours, stress, poor review of ownership

March 2017 – 2nd mention of bullying from senior management. States “lack integrity”, “toxic”

Feb 2017 – Poor review of management, 3rd mention of bullying

Jan 2017 – Management taking on more than they can chew and not listening to staff

*One of above specifically stated CEO/management asked them to leave a positive Glassdoor review

OLL review red flags (only 4 reviews)

Sep 2019 – no growth opportunities, better comm from leadership but says good employee culture

Conclusion:

It’s a small sample size but OLL handily beats JAN in several areas. Of importance to me are company culture and how staff view senior management which are all strong for OLL and better when compared to JAN.

JAN senior management are more highly paid relative to MC, particularly directors.

Please see elpaso96 straw for an explanation of JANs capital structure and what this could mean for investors.

Special thanks to AlphaAngle and elpaso96 for their straws contributing to this analysis.

Management & Culture

The Founders

Adam Brimo CEO B.Eng Software, B. Arts Politics 4.68% + 2M Options/performance rights

https://www.youtube.com/watch?v=gBdqxKDSbeQ

Prof Richard Buckland 3.6%

https://www.youtube.com/watch?v=ktfIkfNz99Y

David Collien Bsc Computing 1st class honours 2.55%

https://www.youtube.com/watch?v=queefjFW3PI

Much of my assessment of management is subjective. I recommend watching the above.

Adam Brimo (2M) and David Buckingham (0.75M) hold performance options, 50% of which are conditional on ARR reaching $4M by Dec 2020; ARR currently $1.1M. The remaining 50% are conditional on ARR reaching $8M by Dec 2021. This sets a high bar and aligns managements interests with shareholders.

Of concern could be that founders lack experience running a large company. Therefore, surrounding themselves with a strong management team will be important.

BOD

Reasonably paid with over 6% ownership if 3.5M options are exercised.

Kevin Barry and Spiro Pappas are the only directors with directorships in other listed companies - ICS Global Ltd and Splitit Payments Ltd, respectively.

Kevin Barry bought shares on market on 2 occasions, shortly after IPO, in December.

Former directors Frank Beaumont and Clive Mayhew still hold 1.67% and 5.86% respectively or over 10.5M shares between them and have not sold down.

Company Culture

4 reviews left on Glassdoor:

•100% CEO approval

•High work-life balance score

•Good senior management score

•High culture and values score

Team consists of a good mix of ethnicities and gender.

OpenLearning have multiple contracts in arrangement. This straw is a summary for all significant ongoing contracts in place. 

1. 19 March 2020 (Alibaba Cloud) - Partnership with internet giant Alibaba Cloud enable OpenLearning to offer students in mainland China high-speed access to online courses. Over 10,000 unique learners in mainland China have taken courses on OpenLearning. OpenLearning is solving a critical problem for universities and colleges globally, they have found that most platforms are substantially slower in speed, the partnership provide OpenLearning with high-speed delivery. This is a strong competitive advantage in the China market. Alibaba’s DNS Acceleration service was implemented for OpenLearning within just one week with zero downtime to existing users. The service speeds up access to OpenLearning via a direct fibre optic cable connection that runs from across specific regions in Asia. 
2. 27 March 2020 (High Resolves) - Operate in (Australia, USA, Canada, Mexico and Brazil). It is OpenLearning’s first SaaS client to utilise the platform for high school students. The non-profit entity provide social justice, freedom type courses. High Resolves have engaged over 350,000 students. The agreement also includes the potential for High Resolves to act as a reseller of the OpenLearning platform to its partner high schools. High Resolves is OpenLearning’s first SaaS client to utilise the platform for K-12 students. There are 100's of schools as partners (no exact number). Under the agreement, High Resolves will pay OpenLearning an annual SaaS fee ranging from A$50k (15,000 students) to A$90k (30,000+ students) depending on usage of High Resolves across all school portals. High Resolves’ sales force will work to convert each school into a paying SaaS customer in exchange, OpenLearning pays High Resolves 30% of the estimated SaaS fee of A$3,000 per school. This reseller arrangement has the potential to reach up to 1,000 schools.
3. 29 April 2020 (Heriot-Watt University (Malaysia)) - Heriot-Watt is one of the UK's leading universities with five campuses across the world (Edinburgh, Dubai, Malaysia, Orkney and the Scottish Borders) as well as 53 Approved Learning Partners and over 29,000 students studying both online and offline. Heriot-Watt Malaysia will pay OpenLearning a one-off Learning Services fee of A$289k (ex GST) for the development of 10 courses, which will be carried out in Q2 and Q3 2020. The agreement includes a 1-year licence of the OpenLearning platform should the program continue in 2021.The services fee would be paid to OpenLearning in line with the delivery of the project in 4 equal instalments and subject to standard termination provisions including insolvency, and fundamental breach of agreement clauses. Approximately 200 to 250 students enrol to take Foundation Studies each semester at the Putrajaya campus, which has a total of approximately 2000 students.
4. 4 June 2020 (Australian Catholic University) - ACU will use OpenLearning’s platform to deliver short courses, micro-credentials and internal professional development programs for its employees. ACU has over 35,000 students across its nine campuses and is expanding its online offering with a particular focus on health and education, two rapidly growing sectors in Australia. Minimum fees payable by ACU to OpenLearning under the agreement is $33k (inc GST) p.a. The agreement builds on an existing partnership formed when ACU made a A$1 million cornerstone investment in OpenLearning’s Initial Public Offering (‘IPO’) in 2019. The terms of the agreement with ACU are similar to large universities. Fees will be renegotiated if the number of unique learners exceeds the upper limit of 20,000 during the term of the agreement.
5. 14 July 2020 (Open University Australia) - OpenLearning have signed agreements with Open Universities Australia (OUA), Australia’s largest online higher education marketplace with 21 university partners. Under the agreements, OUA will utilise OpenLearning’s platform to deliver micro-credentials from Australian universities, which will be promoted through the OUA marketplace. OpenLearning will receive a fixed usage-based SaaS fee for each enrolment on the platform or a percentage of enrolment fees for courses jointly developed under the agreements. The agreements have an initial term of 3 years and there are no minimum fees payable under the agreements. 
6. 14 July 2020 (DeakinCo.) - OpenLearning have signed a platform agreement with DeakinCo., part of Deakin University and a global leader in micro-credentials. The agreement with DeakinCo. has an initial term of 1.5 years and is seen as strategically important to OpenLearning, however, the minimum fees payable under the agreement are not currently material. 

Just to highlight the uncertainty in my valuation, Openlearning recently appointed Spiro Pappas as an Executive Director. 

"Spiro will help OpenLearning’s senior executive team to commercialise its technology in large corporate and financial institutions, leveraging the Company’s higher education partnerships to provide industry-relevant training and micro-credentials." 

When I read this, I immediately thought of Jannison's Learning business. Openlearning is going after the corporate training market. I see 3 ASX technology companies going after this market (Janison, Openlearning and Retech). Retech has operations in both China and Australia but they primarily focus on training English (students and corporates). Janison have customers in this market but recently, they lost 2 (Rio Tinto and Kinross). Those miners found Janison's Academy platform did not tailor to the mining industry. Maybe Openlearning can be flexible with their platform to provide holisitic learning experience for corporates.

Just some thoughts on what I think was an interesting turn of events in the edtech space.       

remote teaching is great

rather than having to wait

for a pandemic to pass

install this software fast