Why BYJU'S did not meet $150-million net profit target in FY21

Sangeetha Chengappa Bengaluru | Updated on April 15, 2021

Focus on chasing growth and huge marketing costs are two major reasons

India's most-valued edtech firm BYJU'S, which was targeting $150 million in net profit, has not been able to achieve it despite being backed by the onrush of 25 million-plus new users on its platform in pandemic-struck 2020. The start-up has grown its registered student user base from 70 million -- 4.5 million annual paid subscriptions-- last October to 80 million registered students-- 5.5 million annual paid subscriptions-- at present.

Focus on chasing growth vs profitability, huge investments in marketing, increasing its penetration into tier 2, tier 3 and tier 4 towns, heavy investments in office space, and high price points of its annual subscriptions are some of the reasons that may have come in the way of BYJU’s achieving its net profit target.

“Gross margins in Edtech are high, in the 60-70 per cent range, compared to e-commerce which could be as low as 5 per cent or the real estate co-living segment which is 17-18 per cent. While scale helps margins improve, BYJU’S could be blowing up a lot more money in marketing. Add to this their huge investment in office space in Bengaluru and increasing investments as they penetrate into tier 2, tier3 and tier 4 towns, and you can see why they didn’t achieve their profit target” said the founder of a fast-track edtech start-up.

If BYJU’S has raised over $2 billion since its inception and with so many investors from around the globe going after BYJU’S, it is natural for them to chase growth and capture market share rather than chase profitability, otherwise, how else would they return money to their investors. Start-ups focus on profitability only when they are unable to raise money but Byju Raveendran has successfully built the world’s most valued $15 billion edtech company out of India, why should he worry about profitability, reasons Krishna Kumar, founder and CEO of Simplilearn.

A VC, who has made investments in edtech start-ups, pointed out that at ₹ 15,000 to ₹ 20,000 per year in subscription, BYJU’S price point is high and unaffordable for students beyond metros. “While FOMO (fear of missing out) is what has got parents to sign up in droves during the pandemic, at some junction if the product doesn’t deliver as much quality as it should for that price point then word of mouth will spread and there won’t be many takers for BYJU’S learning app among their family and friends. While their huge marketing spend may generate trials of their product, their army of 5,000 – 10,000 sales force have to then reach out to students to get them to sign up, which may not have been commensurate with their targets,” he said.

While founder and CEO Byju Raveendran did not want to comment on why the start-up did not meet its net profit target, despite his optimism last October, sources said, the company was busy focused on the integration of its recent acquisitions in 2020, including WhiteHat Jr and Aakash Educational Services, a leader in test prep services .

“Technically, BYJU’S should have had both organic and inorganic growth because integrating the acquisitions has no connection to the operations of their core business - they have acquired revenue with these acquisitions, adding a lot of topline revenue to its P&L. If they want to push the products of those acquisitions through their own distribution channel, because the same salesperson can now sell four different products, that’s what my belief is they would be focused on.

“The acquisition in one sense is the first part, the more subsequent part is getting those companies integrated so that they start getting returns from those investments, which will show up in the following year” said Shripati Acharya, Managing Partner, Prime Venture Partners.

Published on April 15, 2021

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