SUMMARY
The sacking of more than 4,000 employees shows us that BYJU’S is plagued by some very old problems
One of the major problems for the company is that its dozens of acquisitions have not been able to gain from a monolithic infrastructure that would have enabled better unit economics
In contrast to group CEO BYJU Raveendran’s confidence last September, things seem worse for BYJU’S now with a long road to recovery
This week began with our question on whether the new India CEO Arjun Mohan can indeed save BYJU’S from sinking deeper. The edtech giant is in a catch-22 given the slew of problems it needs to fix and no real starting point.
Like we summarised this past Sunday, the five major problems at BYJU’S are:
- Unpaid employee dues and ongoing cost-cutting
- Potential fire sales of acquired companies to repay debts
- Delay in audited financials for FY22 and FY23
- Settling $1.2 Bn Term Loan B
- And rebuilding the business after the exodus of key leaders
And then we wondered which problem the new CEO and BYJU’S would look to fix first?
As it turns out, the starting point is mass layoffs, the same old solution that startups have come to rely on in the past 24 months.
The sacking of more than 4,000 employees shows us that BYJU’S is plagued by some very old problems, those that have become intrinsic to its business and operations.
A company spokesperson said, “We are in the final stages of a business restructuring exercise to simplify operating structures, reduce the cost base and better cash flow management. BYJU’S new India CEO, Arjun Mohan, will be completing this process in the next few weeks and will steer a revamped and sustainable operation ahead.”
This is similar to the statements at the time of the last major layoffs at BYJU’S, almost exactly a year ago, when 2,500 employees were let go.
“As a mature organisation that takes its responsibility towards investors and stakeholders seriously, we aim to ensure sustainable growth alongside strong revenue growth. These measures will help us achieve profitability in the defined time frame of March 2023,” Mrinal Mohit, the former CEO of BYJU’S India, said at the time.
Clearly, that time frame and the profitability targets were grossly overestimated. Mohit is now out of the company and Mohan has been named as his replacement, who began, his stint as the CEO with another round of layoffs.
Despite committing to a September timeline, the edtech giant has yet to file its FY22 financials. The recent series of cutbacks suggest that BYJU’S still requires restructuring to enhance its profitability and ensure the sustainability of the business.
BYJU’S reported INR 4,588 Cr in losses for FY21, a massive 19.8X jump from INR 231.69 Cr in FY20. At the same time, it had claimed an INR 10,000 Cr GMV for FY22, but these claims are yet to be backed by official filings.
Acquisitions Prove Costlier Than Expected
At the heart of the problem is BYJU’S failure to create cohesion between the core platform and the companies it has acquired such as Aakash, WhiteHat Jr, Great Learning, among others.
As a result, these acquisitions have not been able to gain from a monolithic infrastructure that would have enabled better unit economics
Indeed, BYJU’S cofounder and CEO Byju Raveendran hinted as much last year when the company filed its FY21 numbers.
A short flashback to the CEO’s claims last September:
Calling WhiteHat Jr the “under-performer” among the group companies, Raveendran told Inc42 at the time that the focus will be on slower organic growth for this platform. He added that future growth for WhiteHat Jr is likely to involve high cash burn, even as other acquired companies continue to march towards positive unit economics.
He blamed the high customer acquisition cost and the fact that WHJ needs a separate marketing push than the core platform. Raveendran also said that WhiteHat Jr’s user journey is also not linked to the larger BYJU’S machinery. “We don’t have the kind of funnel (in the US) which we have in India (for BYJU’S). I understand if the market was big for WhiteHat Jr in India, we could use our own funnel, but we don’t see that market to be very big in India.”
Raveendran added that WhiteHat Jr will continue to remain a loss-making business for the next few fiscal years given these challenges. But he was confident that the growth within its core edtech business and other verticals such as Great Learning and Aakash will be able to fuel the cash burn that WhiteHat Jr would require.
After acquiring WhiteHat Jr last year for $300 Mn in August 2020, the edtech giant acquired 10 companies in 2021 spending over $2.7 Bn. The biggest one was the traditional offline coaching centre Aakash Educational Services for which BYJU’S forked over more than $1 Bn.
The edtech giant has also grabbed US-based EPIC and Tynker, and most recently Austria’s GeoGebra in a bid to capture international markets.
Reports this week indicate that WhiteHat Jr would be rebranded to BYJU’S Future School, which indicates that the company is finally aligning the coding product with its K-12 and test business infra.
BYJU’S Optimism Withers
Raveendran’s optimism seems like the distant past now, even though it has been just one year since those statements. It’s interesting that the group CEO mentioned how Great Learning would support the likes of WhiteHat Jr’s capital needs, but now that profitable business is said to have been put on the market.
BYJU’S is reportedly mulling the sale of Great Learning and EPIC to repay the term loan B it borrowed to acquire Aakash.
In the M&A world, layoffs are typically an indication of downsizing, to appeal to potential acquirers. Companies get leaner before they are acquired, though right now, there’s no clarity on whether Great Learning or EPIC will also see layoffs.
The latest round only impacts employees at Think & Learn Private Limited, the parent entity of BYJU’S.
Aakash is indeed the crown jewel among all of BYJU’S acquisitions. The coaching centre giant has the legacy and the offline footprint to truly take BYJU’S into the era of hybrid learning. But here BYJU’S risks losing control of Aakash if it does not solve its TLB problems.
The Chaudhry family, the founder of Aakash Educational Services Limited (AESL), has reportedly told BYJU’S that it will terminate the merger and fallback agreement involving a share swap which would jeopardise the acquisition deal.
Further, reports indicate that BYJU’S tuition centres (part of the core BYJU’S platform) have seen close to 60% refund requests out of 75K subscriptions in the past two years, as of August 2023.
To make matters worse, competition has scaled past BYJU’S in the past few months. Unacademy has made strides towards profitability and PhysicsWallah has added more centres and modules rapidly.
Essentially, in contrast to Raveendran’s confidence last September, things seem worse for BYJU’S now in September 2023. At that time, the 20X higher losses grabbed the headlines and the attention of the startup ecosystem, but it turns out, the rot is set deeper than we thought previously.
