BYJU’S, Unacademy & Vedantu: Can India’s Edtech Giants Solve Profit Puzzle?

Nearly 18 months after the end of FY21, edtech unicorn BYJU’S released its financial statements for the fiscal year. In line with expectations of many critics and doubters, the Bengaluru-based startup reported nearly a 20X jump in loss to INR 4,588 Cr in the year ending March 2021. 

However, it’s not just BYJU’S that has this problem — nearly every other large edtech startup in the country, barring a few, is a loss-making company. Banked by VC funds, the cash burn to acquire users and other edtech startups has fuelled the scale of edtech giants, but profitability is still missing. 

What was once touted as a game-changing sector has turned into a cost sink not just for investors but also for schools, teachers and parents. 

India’s three most prominent edtech startups — particularly those who have been working in K-12 and test prep stage — have seen the highs of the Covid-19 pandemic. It was expected to herald a new era for BYJU’S, Unacademy and Vedantu, but the gains of the last couple of years have eroded — instead, there are questions over the credibility and the survival of the entire sector.

So much so that the prospects for edtech giants look bleak even in FY22 and FY23 given the cost-cutting and lack of easy access to funds. According to an Inc42 report, edtech startups are in a short-term funding crisis of sorts. With the effects of the pandemic waning, the funding raised by edtech startups declined 41% to $2 Bn in H1 2022 from H2 2021.

Further, with the opening of schools and offline coaching centres, edtech startups have been seeing a sharp decline in the number of students using their platforms and their revenues are dwindling while marketing costs are rising. 

India’s hottest edtech startups – BYJU’s, Unacademy and Vedantu – are also grappling with these issues, especially as they take their operations offline to compete with legacy players (and in BYJU’s case, acquire them).

A comparative look at the financial statements of the three edtech startups during their ‘shining’ era presents a clearer picture of what they have been doing. It also puts forth a question of how these startups can bounce back and if they will have done any better in FY22.

Indian Edtech Problems & Consequences – Many Pivots, Downturn, Layoffs & Losses

The world’s highest valued edtech company, BYJU’S, had claimed that it would turn profitable by FY18 but failed on the profit front even in subsequent years (besides having a small profit of nearly INR 10 Cr in FY19. In FY21, it reported a loss of INR 4,600 Cr. Tellingly, BYJU’s business promotional expenses stood at INR 2,250.9 Cr in FY21, a 1.5X rise from FY20 (the pre-pandemic year).

In FY21, the unicorn spent almost 4X of what Unacademy and Vedantu spent combined on promotional and marketing expenses. This included expenses on becoming the title sponsor of India’s men’s cricket team, paying high-profile celebrities such as Shah Rukh Khan, who is the official brand ambassador, advertising and marketing campaigns with several A-list celebrities across India and more.

Notably, 20% of Unacademy and Vedantu’s total expenses were on business promotions, whereas BYJU’S spent 32% of its total expenses on this. 

BYJU’S numbers do tell a very ‘promotion’ oriented story, yet, the company spent approximately only INR 3 to earn every rupee of its revenue as opposed to Unacademy and Vedantu’s INR 5. This is mainly because Unacademy and Vedantu spent a lot of money on employees and other operational expenses. Notably, both of the expenses (promotional and employee expenses) are not product-centred, but sales-centred.

Besides, in FY21, BYJU’s had a larger user base of nearly 80 Mn, out of which 5.5 Mn were paying users. Again, despite having a larger TAM (of K12 and test prep) and a bigger user base, BYJU’s lagged behind Unacademy (with a TAM of only test prep at the time) in terms of subscriptions. 

According to the financial statements, Unacademy’s revenue from course fees stood at INR 380.75 Cr in FY21, while BYJU’s earned only INR 320.61 Cr in subscription revenue. BYJU’s total revenue also includes sales from hardware, which accounted for most of its revenue. This has, again, been a point of distress for several analysts, because BYJU’s is essentially a company focussed on selling courses and not devices, tablets, SD cards and laptops.

In FY21, BYJU’s also spent nearly 27% of its expenses on employees compared to Unacademy’s 36% (at INR 748.5 Cr) and Vedantu’s 55% (at INR 407.45 Cr).

Can These Edtech Startups Turn Into Money-Making Machines?

Now all eyes are on the FY22 and the ongoing FY23 numbers for BYJU’S, Unacademy, and Vedantu, as well as PhysicsWallah (PW) which became a unicorn earlier this year. 

The funding and valuation boom of 2021 and the subsequent acquisition and expansion spree is likely to have resulted in a multifold increase in their expenses in FY22. 

It must be noted that the acquisition of WhiteHat Jr is already pinching BYJU’S, while it is yet to clear the dues for its acquisition of Aakash Educational Services.

Cashing on the craze for edtech, these startups also attracted a large number of new students during FY22 and broadened their offerings to include skill-based courses, upskilling courses, and more. However, the slowdown in funding in the sector and the cost-cutting measures taken by many of these startups, including layoffs, will reflect in their financial statements for FY23.

Unacademy also set its foot into the ‘Kota Factory’ with its offline coaching centres and the hybrid model is reportedly driving up the expenses of the edtech startup. Meanwhile, Vedantu is ‘streamlining’ its operations and has laid off over 600 employees. Teachers have been at the receiving end of this consolidation and backsliding in the edtech ecosystem.

Unlike the smaller fish in the edtech sea, these startups can afford to wait and watch by scaling back and undertaking layoffs. Edtech startups have also turned frugal and are trying to cut employee expenses by rolling back some employee privileges, shutting down certain business segments and founders taking pay cuts. Despite these, four Indian edtech startups have shut down till now.

Analysts believe this capital-intensive strategy of expansion is flawed, as customers are not acquired by thinking of long-term sustainability or outcomes. Edtech startups are running like factories, churning out students. 

While hybrid or blended learning can boost their possibility of becoming profitable, investors have suggested a more economical approach. Startups need to reduce their customer acquisition costs (CAC) because a larger CAC will mean a hindrance to the companies’ hybrid model expansions as well. And this is only possible with a focus on outcomes, rather than scaling up. 

For instance, one of Inc42’s reports has suggested that India’s edtech startups do not cater to the masses. Earlier, investors and analysts have told Inc42 that offering courses at a micro price of INR 50-INR 100 or bundled prices of INR 10,000 is a more viable option than charging the current prices of INR 5,000 to INR 50,000.

While losses for VC-funded companies are not something out of the ordinary, analysts believe that the business models of edtech companies are here at flaw. According to many investors and analysts, profitability is likely to elude BYJU’S, Unacademy, Vedantu and the likes for years mostly because it is not their product that sells, but marketing tactics. 

The need of the hour is for a change in the sales-centred models of these edtech startups to content and teachers-centred business models for them to make money.

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