Coursera - Q3 2023
October 26, 2023
Transcript
Operator (participant)
Thank you for standing by, and welcome to Coursera's third quarter 2023 earnings call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speaker's prepared remarks, there will be a question-and-answer session. If you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. I'd like to turn the call over to Cam Carey, Head of Investor Relations. Mr. Carey, you may begin.
Cam Carey (Head of Investor Relations)
Hi, everyone, and thank you for joining our Q3 earnings conference call. With me today is Jeff Maggioncalda, Coursera's Chief Executive Officer, and Ken Hahn, our Chief Financial Officer. Following their prepared remarks, we will open the call for questions. Our press release, including financial tables, was issued after market close and is posted on our investor relations website, located at investor.coursera.com, where this call is being simultaneously webcast and where versions of our prepared remarks and supplemental slides are available.
During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP measures to the most directly comparable GAAP measure can be found in today's press release and supplemental presentation, which are distributed and available to the public through our investor relations website. Please note, all growth percentages refer to year-over-year change unless otherwise specified.
Additionally, all statements made during this call relating to future results and events are forward-looking statements based on current expectations and beliefs. These forward-looking statements include, but are not limited to, statements regarding the potential impacts of trends affecting our industry and business and factors affecting the same, the anticipated benefits and impact of our strategic assets and platform advantages, our ecosystem, platform, content, and partner relationships, our anticipated plans and the anticipated advantages and benefits thereof, our strategy and priorities, our share repurchase program and cash and capital allocation, and our vision, business model, mission, opportunities, outlook, financial, business, and otherwise, and future intentions.
Actual results and events could differ materially from those expressed or implied in these forward-looking statements due to a number of risks and uncertainties, including those discussed in our press release, SEC filings, and supplemental materials. These forward-looking statements are not guarantees of future performance or plans, and investors should not place undue reliance on them. We assume no obligation to update our forward-looking statements except as required by law. With that, I'd like to turn it over to Jeff.
Jeff Maggioncalda (CEO)
Thanks, Cam, and good afternoon, everyone. It's great to be with you all. I'm pleased to share that we've delivered another strong set of results. We grew revenue 21% over the prior year, driven by 27% growth in our consumer segment. We welcomed 6.5 million new learners to our platform, our highest third quarter since the pandemic tailwinds of 2020. Once again, we are raising our outlook on revenue and Adjusted EBITDA as our business model scales. We're delivering these results against the backdrop of a dynamic macro environment, which has reinforced my confidence in our vision for the future of higher education, the strategic assets that differentiate our ecosystem with quality, trust, and world-class branded credentials, and the global need for a platform like Coursera.
We have a lot to cover today, so let's jump in, starting with the long-term trends that are driving our business. The first trend is digital transformation. For many years, the combined forces of technology, globalization, and automation have been accelerating the transformation of every institution in our society. More recently, the explosive adoption of Generative AI is beginning to demonstrate how profoundly this new general-purpose technology will reshape how we live, learn, and work. A McKinsey Global Survey on AI, published in August, showed that nearly 80% of respondents, which included participants from all regions, industries, and seniority levels, reported at least some exposure to Generative AI, either for work or outside of work.
Ultimately, we believe increased demand for education will be driven by an unprecedented rate of change, as every facet of our society, including businesses, governments, and academic institutions, grapples with the need to improve their productivity and human capital in this new world of Generative AI. This change in our society brings me to the second major trend, which is skills development. The rapid adoption of new technologies, tools, and processes creates an urgent need for organizations and individuals to remain competitive.
The same McKinsey survey found that high-performing organizations expect to reskill more than 30% of their workforces over the next three years as a result of AI adoption. For businesses, we believe that learning and development and HR leaders will play a crucial role in building organizational agility and implementing programs to take advantage of growth opportunities, product innovations, and productivity measures.
This will include rapidly deploying new technologies, adapting to change, and unlocking new talent and skills. But businesses are not alone. Governments will need to deliver job training programs at the speed and scale required to keep pace with job dislocation and unemployment changes. As many of the world's largest employers, they will also need to transform their government workforces in order to unlock the value and efficiency gains enabled by Generative AI. And academic institutions, from single campuses to entire systems of higher education, will reckon with how they change the way professors teach, the way that students learn, and the courses that they must offer to meet the needs of graduates and the employers who hire them. Arguably, Generative AI will have a larger and more enduring impact on higher education than COVID did.
A recent study by researchers at Princeton, Penn, and N.Y.U. assessed the impact that Generative AI would have on more than 800 job roles. They concluded that 11 of the top 13 job roles that will be most impacted by Generative AI are college and university professors in post-secondary education. This leads me to the third trend driving our business, the transformation of higher education. Our vision for the future of higher education requires cross-sector collaboration between academic institutions, employers, and government to meet the needs and pace of a fast-changing economy. In past quarters, I've discussed our growing number of partnerships with international institutions, including entire countries looking to uplevel their higher education systems. This quarter, I'm excited to share an innovative blueprint for reimagining higher education in one of the largest and fastest-growing states in the U.S.
Coursera has partnered with the University of Texas System to launch one of the most comprehensive, industry-recognized micro-credential programs in the country. The forward-thinking leadership of the UT System believes that micro-credentials are a powerful and effective tool in producing graduates who are both broadly educated and specifically skilled, giving them a competitive edge in the labor market while also enhancing their overall student experience. Additionally, they are focused on investing in programs that can meet the state's evolving workforce demands, viewing the system as an engine for the local economy. What began as a pilot in 2022 has expanded into a system-wide project. The program provides access to over 240,000 learners, including students, faculty, and staff, as well as alumni.
It encompasses nine UT campuses, all of which have access to the Career Academy on Coursera, which now includes more than 40 entry-level professional certificates created by the world's most respected companies. These certificates are being integrated into the curriculum and often offered as career electives for credit for students pursuing traditional degrees. We designed Career Academy to be a turnkey, scalable solution for our customers, and the value of this offering is continuously enhanced every time that we launch a new certificate, secure additional credit recommendations, and forge new pathways between open course certificates and college degrees.
Our partnership with Texas brings together the vision of Coursera's three-sided ecosystem, including broad, affordable access to high-quality education for learners, the powerful combination of universities and industry experts as educators, and the collaborations of employers, government, and academic institutions to enable innovation at the scale of an entire state or an entire nation. We're able to pursue these partnerships because of our strategic assets and platform advantages, which include our leading educator partners, who created a broad catalog of trusted and branded content and credentials, our global reach to individuals and institutions, which encompasses businesses, governments, and campuses, as well as our data technology and AI advancements that we leverage across our platform. Now, let's cover some of our recent progress for each of these categories. First, educator partners.
In a world where machines are increasingly capable of producing content at scale without guardrails for quality and accuracy, we believe trusted institutions will continue to play a critical role in education. Coursera is the trusted steward of more than 300 of the world's top university and industry brands, who continue to expand rapidly their catalog on our platform. I'd like to begin with updates to our portfolio of entry-level professional certificates, which we leverage as a strategic asset across every segment of our platform, driving consumer growth, enabling governments and campuses like Texas to embed micro-credentials into their curriculum with Career Academy, and allowing students to begin and earn credit towards a college degree with regional credit recommendations and a growing number of degree pathways to bachelor's and master's programs.
Today, we have 44 entry-level professional certificates live on the platform, including new titles from Microsoft and Tableau that launched during the quarter. Earlier this month, we were proud to welcome our first entry-level professional certificate from Amazon Web Services in the fast-growing field of cloud consulting. Our expanding relationship with AWS seeks to serve our learners at every stage of their career. The new training program provides the foundational skills required to start or switch into a cloud career, and it is complemented by AWS's existing catalog of intermediate and advanced content already on Coursera. Now, let's discuss degrees. We announced four new degree programs in Q3 from new and existing partners. They include a Master of Advanced Study in Engineering from the University of California, Berkeley, the top-ranked public university in the U.S.
A Master of Engineering in Computer Engineering from Dartmouth, the university's first fully online degree and the first online Ivy League master's degree in the field, which aims to prepare engineering leaders in emerging technologies and combat talent shortages, shortages associated with the CHIPS Act. As well as two additional master's degree programs from Northeastern University in Data Analytics Engineering and Information Systems.
Both Northeastern programs provide performance-based admissions pathways for learners, where eligible completion of open content on Coursera, simply scoring a B or better on two initial courses, can reduce historical barriers to starting a degree. We believe that the college degree needs to be more accessible, affordable, and relevant, and we've spent much of this year laying the groundwork for how our platform can uniquely address the needs of working adults, collaborating with partners committed to transforming the degree experience.
Coursera is pioneering a new type of degree that we call pathway degrees, that are designed to meet the needs of working adults. These degrees incorporate credit pathways, where the learning and open content on Coursera can count as academic credit towards a college degree program. Admissions pathways, where performance and open content on Coursera can unlock admissions into a college degree program, and progress pathways, where completion of content on Coursera can count as completion of coursework in a college degree program. One example of this is our recently launched degree programs with Illinois Tech. We're excited to share that as of September, Illinois Tech has agreed to create more than 10 pathways from our industry content into two master's degree programs. The industry content includes several of our best-performing entry-level and advanced professional certificates from Google, IBM, and more.
These micro-credentials have over 4 million cumulative historical enrollments. That recaps our progress with our catalog and educator partners. Now let's move to our second major advantage, the global reach of our platform. For institutions, we increased the number of paid enterprise customers to over 1,300, with many of the recent additions driven by the momentum we're seeing in our campus vertical. As I highlighted before, we added 6.5 million new registered learners, growing our global learner base to 136 million by the end of September.
Growth continued to be broad-based, with double-digit % increases across all regions. This year, we've been investing in a number of strategic priorities focused on enhancing the localized learner and customer experience on Coursera, which is where I'd like to start the discussion of our third advantage, the ongoing product innovation across our platform.
First is our AI-powered language translation initiative. We believe that high-quality education from the world's leading experts should be accessible to learners anywhere in the world, no matter what language they speak. For much of the world, access to educational opportunities is often limited to those who speak English. As emerging technologies create new skill requirements and the world's talent becomes more globalized, language barriers create impediments to collaboration, productivity, and economic opportunity.
Our strategy is to use technology to dramatically reduce the time and cost of producing high-quality, trusted content at scale. Remarkable advancements in the quality of machine learning translations can now translate courses at a fraction of both the cost and speed of using conventional human methods. We set an ambitious target at the beginning of this year to deliver more than 2,000 full course translations into seven of the world's most commonly spoken languages.
I'm pleased to share that we accelerated our efforts, launching twice our original goal with more than 4,000 full course translations in Spanish, Arabic, Brazilian, Portuguese, French, German, Bahasa Indonesia, and Thai. The newly translated courses include the full learner experience, like lecture video subtitles, course readings, assessments, discussion prompts, the user interface, and more.
We've created a simple toggle experience, providing learners with the option to practice skills in their local language or use subtitles for English courses to advance their proficiency in specific workplace skills. I've been inspired by the team's progress, but we're just getting started. We expect to have more than 4,000 courses translated into more than 15 languages by the end of this year, and we see many other ways that Generative AI can reduce language barriers in addition to the translation of written words.
Second, I'd like to provide an update on our credit recommendation initiative. We've been actively pursuing American Council on Education, or ACE, credit recommendations for many of our most popular courses and credentials, specifically our catalog of entry-level professional certificates. Achieving these credit recommendation distinctions, which is possible due to the quality of our catalog, has enabled us to pursue many of the strategic highlights I've shared today, including large system-wide deployments of Coursera for Campus, as well as a growing number of pathways from our consumer segment into our degree segment.
I'm excited to share that the Foundation for International Business Administration Accreditation has certified 12 professional certificates from Google and IBM with European Credit Transfer and Accumulation System, or ECTS, credit recommendations. This allows ministries, higher education institutions, and students to accept and transfer university credit for eligible industry micro-credentials on Coursera at institutions across 49 member nations.
It's an important milestone in our ongoing regional efforts to bridge the combined expertise of university and industry for the benefit of learners, employers, and academic institutions. Finally, we continue to make progress on our efforts to integrate Generative AI into our product experience. Coursera Coach, our virtual learning assistant, launched as beta versus the Coursera Plus subscribers during Q2. This quarter, we expanded our beta program to include enterprise customers while embedding the coach interface into additional areas of the learner experience.
We remain excited about the potential for this technology to dramatically enhance the personalized learning and discovery experience on Coursera, and feedback from beta participants remains encouraging, specifically our distinct ability to ground these technologies in the expert, trusted content on Coursera. To wrap up my opening remarks, let me recap several key priorities that we're focused on in the years ahead.
First, we are rapidly enhancing our catalog of entry-level professional certificates, including new partners, roles, languages, and credit recommendations. Second, we're sourcing and launching new degree programs, especially those tailored to meet the needs of working adults, including flexibility, affordability, and streamlined pathways between our consumer micro-credentials and college degrees. Third, we're focused on growing our enterprise segment across our business, government, and campus verticals. And fourth, we're harnessing AI technologies to deepen our advantages while reimagining the platform experience for the benefit of our learners, customers, and educator partners. And we're accomplishing these priorities while delivering more scale and operating leverage over time. I'd like to now turn it over to Ken. Ken, please go ahead.
Ken Hahn (CFO)
Thank you, Jeff, and good afternoon, everyone. I'm pleased to report another strong quarter of performance for Coursera. Our diversified platform continues to serve us well, providing multiple growth opportunities and producing financial and operational leverage as we scale. As I'll discuss shortly, this is once again leading us to raise our revenue and Adjusted EBITDA margin targets for the full year. Our third quarter performance is highlighted by the durable demand, solid execution, and increased confidence associated with our consumer segment. We believe we are in the early stages of a long-term trend in education, where the units of learning are breaking down into more affordable, accessible, and relevant credentials that can unlock a job or lead towards a college degree. This trend, in combination with our assets, is fueling our consumer results.
We are actively driving the strategy with key investments, growing our catalog of trusted brands, building localized payment infrastructure in international markets, and deploying new technologies, including initiatives like our AI translation efforts, to better serve the millions of learners coming to Coursera for high-quality, job-relevant education. In Q3, we generated total revenue of $165.5 million, which was up 21% from a year ago. Growth was driven by double-digit increases across all three of our segments, with particular strength in consumer. Please note that for the remainder of the call, as I review our business performance and outlook, I'll discuss our non-GAAP financial measures, unless otherwise noted.
Additionally, I'd like to remind you that our results in 2023, particularly the year-over-year comparisons to gross profit and operating expenses, continue to reflect the shift in income statement line items associated with the beginning of your contract extension with our largest industry partner. We have discussed the shift thoroughly in our prior earnings calls and throughout the year. So again, just a reminder. Removing the noise from the shift in P&L geography, we are driving strong bottom-line EBITDA performance on a year-over-year basis. Cost of revenue increased by 14 points as a percentage of revenue, while total OpEx decreased 15 points compared to year-ago results, and we are increasing our guidance for annual EBITDA margin, as I will soon share. For the third quarter, gross profit was $84.9 million, and a 51% gross margin, which was down 14 points from the prior year period.
Total operating expense was $94.5 million, or 57% of revenue, down 15 points from 72% in the prior year period. Looking at the P&L line item components of OpEx, sales and marketing expense represented 32% of total revenue, down 6 points. Research and development expense was 16% of revenue, down 5 points. General administrative expense was 10% of revenue, down 4 points. Net loss was $2.1 million, or 1.3% of revenue, and the Adjusted EBITDA was a loss of $5.3 million, or 3.2% of revenue. The better-than-anticipated result was due to both overall revenue growth and strong operating expense discipline, and I continue to be pleased with our ability to invest in multiple growth initiatives while delivering leverage and scale. Turning to cash performance and the balance sheet.
Free cash flow was $15.6 million during the quarter, compared to $1.3 million a year ago, driven by overall operating performance, as well as some working capital benefits. We ended the quarter with approximately $721 million of unrestricted cash, cash equivalents, and marketable securities, with no debt. Additionally, we continue to make progress on the share repurchase program announced on our April call. During the third quarter, we bought back approximately 300,000 shares, an average price of $12.67 per share. This amount, in combination with the strong initial traction we made in the second quarter, has allowed us to repurchase a total of $58.5 million to date. Finally, I want to remind you that our capital allocation priorities remain unchanged.
We're focused on both investments in our organic growth, along with the resilience and the strategic optionality provided by a strong balance sheet to win our large and early markets. Next, let's discuss the performance of our segments in more detail. Consumer revenue was $99 million, up 27% from the prior year on solid execution. Demand remains strong for our growing portfolio of entry-level professional certificates, including a number of successful recent launches from Google, IBM, and Microsoft. As Jeff mentioned, our top-of-funnel activity remains robust, with 6.5 million new registered learners coming to Coursera. Segment gross profit was $51.8 million, or 52% of consumer revenue, compared to 73% a year ago, reflecting the impact associated with the industry partner contract extension, which is most pronounced in consumer.
We believe our strategic bet on high-quality credentials created by the world's leading brands distinguishes our consumer segment and has created a differentiated offering for learners around the globe. We intend to invest into this tailwind to create more value for our learners, expand our new and existing partners, and reinforce the competitive assets and operational leverage that also benefit our other segments. Now, let's move to Enterprise. Enterprise revenue was $54.9 million, up 14% from a year ago, on growth in each of our three segment verticals. Segment gross profit was $37.1 million or 68% of enterprise revenue, compared to 71% a year ago. The total number of paid enterprise customers increased to 1,315, up 21% from a year ago, and our net retention rate for paid enterprise customers was 99%.
Our commentary on Enterprise has remained consistent this year, with ongoing pressure in our Coursera for Business vertical, offset by momentum in our newer verticals. While we await more clarity on corporate learning budgets, we are leaning into the benefits of our diversification of government and campus, where the customer use cases, like the Texas example Jeff just discussed, are particularly well suited for our branded job-relevant credentials. Finally, our Degrees segment. Degrees revenue was $11.7 million, up 13% from a year ago on growing student enrollments. The total number of degree students grew 15% from a year ago to 20,432. As a reminder, there's no content cost attributable to the Degrees segment, so Degrees segment gross margin was 100% of revenue.
As Jeff discussed, our progress in Degrees remains promising as we prioritize the foundational work required to fundamentally transform access and affordability in online degrees, using the capabilities of our platform and our ecosystem partners. This requires sourcing and launching new programs that leverage our platform's unique assets, while increasingly creating pathways between our consumer segment and our degree programs. Today, more than a dozen of our most popular certificates offer credit pathways into multiple degree programs, and we are focused on building more linkages from micro-credentials where we benefit from scale. Now, on to our financial outlook. For Q4, we're expecting revenue to be in the range of $161 million-$165 million, driven by our increased confidence in the durable demand we continue to see in our consumer segment.
While a relatively small contribution on a dollar basis, we don't expect degrees growth trajectory to be linear quarter to quarter and now anticipate mid-single-digit growth in Q4. We remain focused on enabling our pathway degree strategy while closely monitoring cohort recruitment and student persistence, particularly for newly launched programs with more flexible structures. As a reminder, we'll share our updated views on segment-specific growth expectations for full year 2024 on the February call, following the completion of our annual planning process. As we've discussed since the beginning of the year, fourth quarter Adjusted EBITDA is expected to be breakeven. As a relatively new public company, we look forward to achieving this milestone and delivering on our accelerated commitment to profitability. Turning to the full year, we're increasing our outlook for both revenue and Adjusted EBITDA.
We now anticipate revenue to be in the range of $628 million-$632 million, representing approximately 20% growth at the midpoint of the range. Our full-year revenue outlook has increased by $30 million since the start of the year, and $10 million since the prior quarter. For Adjusted EBITDA, we are now expecting a reduced loss of approximately $15.7 million or negative 2.5% Adjusted EBITDA margin at the midpoint of the revenue guidance range. As you know, our consistent practice, both pre-public and as a public company, is to set an annual EBITDA margin target at the beginning of the year and work within that plan based on the structure of the business.
This year, we've been able to drive both top-line performance and operating efficiency for a revised guidance improvement of 250 basis points in a full-year Adjusted EBITDA margin from our initial 2023 target of -5%. Finally, I want to reiterate our expectation of being EBITDA positive for full year 2024, and intend to share more detail regarding next year's annual margin target on the February call. We are operating a diversified growth company, delivering high-quality learning through multiple channels. We are producing this growth with consistently increasing scale and leverage, resulting from the complementary benefits of our three segments. And we are investing in our long-term strategy from a position of financial strength, allowing us the resilience and the strategic flexibility to fundamentally transform the education market. I'll now turn the call back to Jeff for closing comments.
Jeff Maggioncalda (CEO)
Thanks, Ken. Our mission has always been deeply rooted in our business. So to wrap up today's remarks, I'd like to highlight one additional enterprise customer that demonstrates how our platform is impacting the next generation of talent. Like many states across the country, emerging technologies are reshaping the labor market in Nevada, fostering new industries, creating job opportunities, and changing in-demand skill sets. I'm proud to share that Coursera for Government has partnered with the Nevada Department of Employment, Training and Rehabilitation to launch LearnNV, a new statewide program that will provide free job training to tens of thousands of unemployed and underemployed Nevadans. The program's initial focus is aimed at Nevada's youth population, equipping young adults ages 18 to 24 with the skills and credentials that can help them unlock well-paying careers.
We're excited about the inclusion of our entry-level professional certificates, which were specifically designed for learners with no college degree or background in the field, to learn the skills needed for a job in less than a year. These young learners don't need to choose between an entry-level job or a college degree. With a growing number of ACE credit recommendations, completions of these micro-credentials provide them with the opportunity to earn academic credit and the optionality to pursue a bachelor's or master's program through one of our pathway degrees, should they choose to continue their education in the future. The first phase launched in Clark County in September and will expand to the entire state in the coming months. It's one more example of a Coursera partner with the ambition to deliver a statewide impact through our platform.
Our government customers, like businesses and academic institutions, increasingly understand the important role that they play in enabling the future workforce, addressing skill shortages, transforming their local economies, and equipping the next generation with the education and opportunities that they need to succeed in an increasingly digital world. Now, let's open the call for questions. Thank you.
Operator (participant)
Thank you. As a reminder, everyone, if you would like to ask a question during this time, please press star followed by the number one on your telephone keypad. We will take our first question from the line of Stephen Sheldon with William Blair.
Stephen Sheldon (Director and Equity Research Analyst)
Hey, thanks. Great results here. Firstly, just wanted to ask about kinda generally how you're thinking about the resiliency of consumer revenue growth, which I think is far surpassed everyone's expectations in recent quarters. Do you think there could be some slowdown, especially if industry job openings pull back at all? As I think a lot of learners on your platform are trying to drive employment outcomes, at least more so than, than maybe some other B2C platforms out there. So generally, how are you thinking about the consumer segment, as we head into 2024?
Jeff Maggioncalda (CEO)
Yeah. Hey, Stephen, this is Jeff. We agree. I mean, if you look at the numbers, consumer has been very strong. Pretty much across the board, when you look down the funnel and you look across regions, it, it just seems like these types of professional certificates that are designed around a job and don't have a lot of requirements for a college degree or prior work, they, they just seem to be resonating with people who—I mean, maybe it's the job opportunities, but a lot of it seems to be frustration with the jobs that people are, are in right now.
I mean, when we interview people in these certificate programs, what they say is: "I'm not sure what job I wanna get, but I'm sure I wanna get a different job that's more flexible, pays better, and has better long-term career opportunities." If that's the reason they're coming, you know, maybe it would abate if there were fewer job opportunities out there. To some degree, it's more about people looking for something better than looking for something specific. And so, you know, we don't see a reason why this should slow down. And, like I said, across the board, whether it's in North America or in Europe, these professional certificates in the consumer segment seem to be, you know, growing at a good clip.
Stephen Sheldon (Director and Equity Research Analyst)
Great. Yeah, that's really helpful. And then, great to see the progress on translating courses into other languages. Curious what feedback you're getting about the quality of translations from learners that have engaged with it so far. And I know it's early, but is the language expansion driving any positive outcomes, or I guess, at least more positive conversations, especially within enterprise?
Jeff Maggioncalda (CEO)
Yeah. We are... You know, when we've been doing the translations, I mean, part of what we're able to do is to look at the quality ratings from the translation providers. As you can imagine, they do a lot of testing on language pairs to say, "Hey, our models, when we translate from English to Spanish, you know, this is the quality rating." They usually benchmark it against, they call it a BLEU score, but basically, it's against a reference point of, of professional, human translators. These BLEU scores are coming up across almost every language pair, and certain providers are better at certain language pairs. What we're finding is, you know, feedback from learners, that certain language pairs are very good, and usually that's based on the amount of language that's available on the internet. So English to Spanish, really good.
English to French, really good. English to Brazilian Portuguese, really good. English to Thai, not as good as Spanish. But what we hear from Thai learners is, "I'm so much happy to have some translations than nothing." And what we're doing is we're actually building a human-in-the-loop process, where the learners get notified that it's machine translated, and they have the ability to put a little down thumb arrow to say, "That wasn't so good." They can even specify, you know, what about it wasn't good. And then, we do have human translators that will go in and improve those elements of courses in certain languages where the quality level needs to be improved. But the other thing that we're talking to our institutions about, and we've also done institutional testing.
We're not only getting feedback from consumers, but also from institutions who are looking at this and measuring quality, is we're saying that the rate of progress is so high, and the rate of cost decreases is so high, that we will effectively just keep on translating these things as every new model comes out with better quality. You know, right now, it's machine translation with humans in the loop. As the models get better, there'll be fewer and fewer humans needed in order to keep the quality at the bar that we're looking for. Overall, we've been pretty positively impressed by the feedback that we're getting from both consumers and from enterprises. Oh, and then Steven, you asked him about unlocks.
You know, I think that we are just now kind of promoting that these certificate, mostly certificates, but other courses are available in other languages on the consumer segment. We need to unlock the payment capabilities to really take advantage of the language translations on consumer, but especially on Coursera for Government and Coursera for Business, where an institution has a global population or a large population of non-English speaking learners, they're kind of saying, "This, this is pretty good.
It's really high quality from well-known brands, but still available in lots of different languages." And, and for a business that might have a workforce across 10 different countries that speaks five different languages, being able to use the same high quality content, so everyone's learning the same stuff, but they're able to learn it in multiple languages, that's something that, that currently almost no other solution on the market can provide. So we're getting very positive feedback from enterprises on the applicability of this for global workforce.
Ken Hahn (CFO)
Early yet for anecdotal extra contracts closed, Jeff, you're in the field all the time, and you're hearing very positive feedback on applying the app. Great to hear. Appreciate the call.
Jeff Maggioncalda (CEO)
All right, thanks, Stephen.
Operator (participant)
We'll take our next question from Josh Baer with Morgan Stanley.
Josh Baer (Equity Research Analyst)
Great. Thank you for the question, and congrats on the outperformance in the quarter and consumer acceleration. I did wanna ask on degrees, and I think I heard the commentary for mid-single-digit growth. That was degrees in Q4. Just wanted to confirm that. And I believe that's when you combine sort of Q3, Q4, it's a bit different than some prior expectations on the growth profile. If you could sort of talk through any changes that you're seeing as far as degree performance.
Ken Hahn (CFO)
Sure, Josh. This is Ken, of course. Yes, that is the implication and which is why we wanted to make the comment ahead of time. We're still working through on the degree strategy, our pathways, and we're seeing good progress, and we're excited about the growth going forward. Do not get us wrong on the strategy. And we've been very open about this.
As we're sorting that strategy, the growth has been a little bit more variable in the meantime. So finishing off this year is not quite where we thought it was gonna be at the beginning of the year. We're excited about it as we get into 2024. We'll produce, or we'll provide additional guidance in the February call, and we're gonna be for the year on degrees in each of the segments. But overall, yes, that's exactly why we made those comments.
Jeff Maggioncalda (CEO)
And then Josh, you know, as we look at this and figure out what leads to some of the negative variances there, a bit of it is recruitment into degree programs. But when we look at the specific degree programs and we say: Well, how are we doing recruiting into, you know, different populations of degree programs? We are seeing encouraging signs that when there are degrees that have these pathways, they're looking pretty good.
It's more of the more expensive traditional degrees without the pathways, where we're seeing some of the, you know, kind of continuing headwinds, I think, from a tight labor market and many of the things that we've seen in the past, which I think are affecting not only traditional online degrees, but frankly, traditional degrees in the United States. I think a lot of it is we're still seeing a tight labor market put pressure on people saying, "I wanna, I wanna go for one of those more expensive traditional degrees.
Josh Baer (Equity Research Analyst)
Got it. Very helpful. And then on consumer, with just the impressive growth, you know, number that you put up and acceleration, and I think in the first question was on consumer, and Jeff, you could sort of talked about just strength there and expecting that growth to kind of continue. I just wanted to see—I know we're gonna get some thoughts on 2024, next quarter for consumer, but with the growth accelerating so much, like, is there any need to moderate sort of expectations on that trajectory of growth in that segment, just given, you know, where it is and where people might, you know, expect it to go?
Ken Hahn (CFO)
Sure, Josh. So, you know, we've provided, of course, overall guidance for the coming quarter, as we always do. We don't provide different segment- we're just not in that business to do that across each of the three segments every quarter. We do feel very good about consumer. We, that momentum continues. We're hopeful it continues at the same pace it does, but we, we don't update guidance between the segments. And again, it's captured in the overall guidance, of course, for the quarter. But we're, we're really pleased with the results, and all we see is positive on the consumer side.
Jeff Maggioncalda (CEO)
Yeah, another thing, Josh, you know, a way to also kind of think through your question is: What are the factors that are causing this growth? And are there reasons to believe that some of those factors might be temporary? And we think a lot of it is kind of what's happening in the global labor markets, and as Ken said in the script, like, people are looking for cheaper, more flexible job-oriented ways to switch a career or to start a new career. So we don't see why that would change necessarily. Another thing is that some of this growth, and you see it in the sales and marketing line, Ken mentioned this in the script as well, we're seeing pretty good returns from paid media spend on these professional certificates.
And I think part of what that is, is as the portfolio's gotten big enough, now over 40 of these, it appeals to a lot more people, and it makes your—it's making our ad spend a bit more productive. And so at some point, the marginal, you know, benefits of that start tapering off, but we're seeing pretty good leverage from advertising spend. So that's feeling pretty good there. And then we've got the language translations, which are just starting, and we think that could look good. Now, something that often is a little bit temporary is when a blockbuster new title comes out, and it's—it produces kind of a big bang spurt of growth when the new title comes out. But when you look at the full year, it's not really a story of one big title producing all the growth.
I mean, it is more diversified than that. And so unlike, you know, maybe three, four years ago, where one title would've been responsible for a majority of the growth, that's not really the case in 2023. And that way, we think we could probably bring a lot of this momentum into 2024, 'cause it's not sort of a one-time bump that we received in the 2023 numbers.
Josh Baer (Equity Research Analyst)
Really helpful. Thank you.
Ken Hahn (CFO)
Sure.
Operator (participant)
We'll take our next question from Jeff Silber with BMO Capital Markets.
Jeff Silber (Managing Director of Equity Research)
Thanks so much. You know, your growth has been strong. You expect it to continue. I'm just curious, do you have the infrastructure, specifically the people, to continue the strong growth? You've talked about the tight labor market. I'm just curious if we could get some color on that?
Jeff Maggioncalda (CEO)
Yeah. Thanks, Jeff. It's a great question, and it really does play to our HR strategy. During the pandemic, when we all started working from home, we recognized a number of things. One is, we can be pretty productive, even when we're working from home. Another thing that we realized is our ability to drive increased diversity and a more global talent pool, when you're able to work more remotely. And so we have a pretty remote first working culture. Part of what that means is, we're finding talent all over the world, and we are not really constrained to a certain talent pool, and so our recruitment's been really great. Plus, you know, people really love working for mission-driven companies these days.
I think when it comes to talent recruitment, we are not seeing any major constraints on our ability to find really good talent that wants to work for Coursera and to find that talent at affordable costs. I would say that, no, we really aren't seeing talent constraints, and we don't foresee... at least I don't foresee next year, talent constraints as one of the major features. Another thing I'll just say as you look at the executive team, for example, our exec team lives in the Bay Area, New York, Denver, Utah. I mean, we can really get the talent at all levels from a number of different places. I think that gives us a pretty good flexibility in securing the talent that we need.
Jeff Silber (Managing Director of Equity Research)
All right. That's really helpful. If I could shift over to the enterprise segment. The net retention rate increased a bit sequentially. It's been dropping for a number of quarters. Is there some seasonality? Are you seeing some improvement there? Again, if we can get some color, that would be great.
Ken Hahn (CFO)
Yeah, Jeff, it, it's... This is Ken. It's a little early to tell. We don't wanna declare victory yet. We're pleased it's rebounded a little bit. We don't like the fact it's not triple digits, to be perfectly honest, and we see room for improvement. I'd say our commentary overall in the enterprise space hasn't changed. What I'm talking about specifically is C4B. We're definitely more excited about the C4G, and particularly the C4C verticals, where we're seeing some really nice progress. Overall, the macro has remained tough in C4B. The numbers are stabilizing. We like that. Again, we're not declaring victory yet.
Jeff Maggioncalda (CEO)
Yeah, another thing I'll mention, Jeff, is and when Ken says C4B, that's Coursera for Business, Coursera for Campus, and then C4G is Coursera for Government. We do see different NRRs by vertical, right, among those. The other thing I'll point out that is promising from my perspective is it also depends on the use case. When academic institutions deploy Coursera for Campus for credit towards degree, we see pretty strong NRRs.
And so we're trying to identify and then really drive use cases of Coursera in those institutional settings where we have high NRRs, where we're delivering great value with a distinctive offering, and when customers try it, they're like, "I want more of it." So we're seeing some positive signals underneath that average that you say there, and I'll reinforce what Ken said. You know, double-digit NRRs are not where we want to be at all. Our aspirations are much higher, and we see pathways to drive that back up.
Jeff Silber (Managing Director of Equity Research)
Okay. Appreciate the call. Thanks.
Jeff Maggioncalda (CEO)
Sure.
Operator (participant)
We'll take our next question from Brian Peterson with Raymond James.
Brian Peterson (Managing Director of Equity Research)
Oh, hi, gentlemen. Congrats on the quarter. Just one from me. So if we think about the professional certificates, you know, I'd love to understand, thinking about maybe sales cycles, maybe that's not the right term, but the late-stage pipeline. As people see what you're able to do and the scale you're able to reach, has it become easier and quicker to get more professional certificate partners onto the platform? Thanks, guys.
Jeff Maggioncalda (CEO)
Yeah. Thanks, Brian. It is if you look at the rate of increase in professional certificates out there, we're at 44 now, and it's kind of a number of things. You know, step one is identifying which jobs do we wanna offer a professional certificate for, and then making sure you design it to have the skills that hiring managers will need. And then you look to a partner, and then you produce it, you launch it, you promote it, et cetera. I would say that the interest among industry partners wanting to create branded professional certificates is high and increasing. I mean, the more that we have from, you know, world-leading brands, the more other brands are like, "Hey, I'd like to do this, too.
I wanna put my brand into the world, where it's not just, you know, on a TV ad or a billboard, where my brand is something that my customers interact with, and my brand helps create opportunity." I mean, it's a level of engagement and impact that's a pretty powerful way for, you know, employers and businesses to engage their audience. So we are seeing, I think, increased interest in this. I think with language translation, that will also open up new markets that many of these brands are looking to engage. And so we do see that this cycle of identifying, sourcing, building, and launching is on a positive trend.
I don't wanna overestimate how quickly we can get these built, but I will say that Generative AI will make it easier and less expensive, and faster to build content generally than before Generative AI. And so we, we see increasing demand and likely increasing speed and reducing costs as we march forward in with professional certificates.
Brian Peterson (Managing Director of Equity Research)
Great to hear. Thanks, Jeff.
Jeff Maggioncalda (CEO)
Sure.
Operator (participant)
We'll take our next question from Ryan MacDonald with Needham & Company.
Ryan MacDonald (Managing Director of Equity Research)
Hi, thanks for taking my question. Congrats on a nice quarter. Jeff, maybe to start with you, on the... As we think about the pathways, degrees, and sort of the rollout, continued rollout here, if you look at the existing sort of portfolio of degrees that you have, how many of those university partners are exploring or showing interest in the pathways, from that perspective? And then, are you seeing any signs on the early stages of the ones that you've already launched, where you're seeing sort of a better ability to convert maybe a consumer learner to a degree learner from some of these degree pathways?
Jeff Maggioncalda (CEO)
Yeah. On the first question, we do see growing interest in from universities saying, "Hmm, this is, this is an interesting concept." The more that we have, ACE credit recommendations, ECTS credit recommendations, and other quality standards that universities and postsecondary education institutions have looked to in the past, the easier this gets. The more that we have states, you know, University of Texas and the whole UT System and other major university systems doing this, others look to that and say: "Well, hey, you know, if they're doing it, this seems like a pretty good thing." I will also say that in the U.S., especially when it comes to public institutions, including flagship public universities, there is a state mandate to educate people on a much broader scale than many of these universities are doing.
And when you look at the demographics, with a generally declining population of young people compared to, say, the millennial cohort that came through, helping to educate working adults is becoming a bigger imperative. And these pathway degrees, which don't require you to stop what you're doing and move to a campus, clearly fit the needs of this older working adult population that needs to get reskilled because technology is changing jobs so quickly. So, we do see a lot more interest and a lot more openness to these more flexible pathway degrees, even from fairly elite universities. And I'll say not just in the U.S., of course, globally as well. In terms of conversion, and I kinda mentioned this a little bit, we're not happy with the degree segment.
I mean, it's not as I think Josh maybe asked, it's not what we had said at the beginning of the year. We're not gonna finish up on target there. But when you look at the performance of degree programs that have these pathways, you do see an ability to make a proposition that resonates with the learner, that helps convert them from the consumer open content into degree at better rates than just a plain vanilla traditional degree. We have a lot to prove out. We've got to do it more at scale. Part of what we're also doing is looking to existing degree programs that don't have pathways and architecting pathways for those degrees.
We're trying to create pathways from those types of certificate programs, where we have a lot of learners who are seeking jobs because of those professional certificates that would benefit from a degree, and you get a wage and wealth premium if you have a degree. So there, there's a lot of work to do, but, you know, the logic is, is very clear, and the intuition certainly resonates. And when you put the proposition in front of learners, it makes good sense. So we're early stages.
Ken Hahn (CFO)
Logic, the intuition, and the early results.
Jeff Maggioncalda (CEO)
Yeah. Yeah.
Ken Hahn (CFO)
We are seeing positive signs on the strategy.
Jeff Maggioncalda (CEO)
Yeah
Ken Hahn (CFO)
... To be very clear.
Jeff Maggioncalda (CEO)
But obviously, it's still early, and we've got a lot to prove.
Ryan MacDonald (Managing Director of Equity Research)
Super helpful color there. Maybe just as a follow-up, I wanted to touch on the translation. As we think about how this sort of translates, if you will, to business performance moving forward... I mean, from the regions and languages that you've already translated for, how should we start to track, you know, success in this area? Is this more registered learners on the platform coming from countries that are speaking in those languages? Should we start to see that more in terms of paid conversion or expansion opportunities within the, perhaps the Coursera for Business segment? How should we track this moving forward?
Jeff Maggioncalda (CEO)
Yeah. So separate from what we actually report, and then I'll talk about what metrics that we report might move first. But just so that you understand the intuition of kinda how we're seeing the translation show up as demand. Currently, the part of our business where we're seeing the most immediate response is Coursera for Government. And a lot of it is governments serve their citizen populations, and in many cases, those populations don't speak English, or few of them speak English as a second language.
When we're able to go to a government and say, "We can help you, skill up 100,000 people who speak Arabic, and maybe only 10% speak English," but we have a full catalog of high-quality brands and credentials in Arabic or in Thai, that's a very different proposition than what we were able to say six months ago. So I would- And now, how might that show up? Well, we measure it as bookings, but you wouldn't see it, except insofar as you'd see number of, enterprise customers. You might see bigger buys, so it could be an NRR, where existing customers can roll, government customers can roll this out to bigger populations because the language accessibility is higher. And then, at some point, that will show up in ARR.
You know, just the revenue that shows up on the enterprise segment. So on the Coursera for Government side, it's kind of that sequence of leading indicators. The second would be Coursera for Business. Not so much focused as Coursera for Government on the non-English speaking, but there's a lot of businesses where the primary language is spoken is not English, or at least many other employees in different countries with global operations don't speak English at all, or don't speak English as a primary language. And the businesses would much rather have one set of courses that teaches something in the same way, with the same basic concepts, but just in different languages. And so, you know, we are seeing attractiveness in Europe and other parts of the world where businesses are saying, "Hey, this is pretty nice.
One set of courses for a global workforce." That would show up in the same kinds of metrics as what I was saying for Coursera for Government. And then, you mentioned consumer, and I, I think there might be a bit more of a lag, and I think we have to unlock it with payment systems and international sort of localized discovery, and to some degree, paid media. We're, we're mostly doing the paid media in North America right now and seeing a good return.
We would have to kind of ramp that up and figure out how to get good returns on that paid media. But that would show up faster once we get the payment capabilities in place, and we, and we kinda figure out the recipe of: who do you market to? What's your message? And what payment systems back it up? But when we do, if we do figure that out, that'll show up as consumer revenue, on a much quicker timetable.
Ryan MacDonald (Managing Director of Equity Research)
Thanks again.
Operator (participant)
We'll take our final question from Taylor McGinnis with UBS.
Taylor McGinnis (Equity Research Analyst)
Yeah, hi. Thanks for taking my question. Just one for me. On the enter- can you maybe talk a little bit more about how budget discussions are going and some of the competitive dynamics? Is there a line of sight to, you know, stabilization? Are trends still worsening? I'm just trying to get a sense of whether revenue growth could begin to stabilize in the teens or, you know, if trends are pointing to the potential to dip closer to the single digits. The second part of it is that maybe from, like, a mix standpoint, is C, C4B reaching a point where you could see a more favorable mix shift in the future, maybe towards some of the other areas that have been more durable?
Jeff Maggioncalda (CEO)
Yeah. Great question, Taylor. I'll start with your mix question because, obviously, we got started with Coursera for Business, which is facing the biggest headwinds before Campus and Government. It is now getting to the point where Coursera for Business is still the biggest, but the other two, which are growing faster, are becoming big enough that it's affecting the growth rates. As we go into 2024, if we sustain those, and we expect that we will... When I say those, if we can sustain the non-business Campus and Government verticals with higher growth rate, we do expect the overall enterprise growth rate to start tilting up because of those other verticals. More specifically to, yeah, well, what about Coursera for Business?
It's still pretty tough out there, and it is pretty competitive, and budgets and teams are seeing compression. You know, competition is pretty intense. There's a lot more competition—we see a lot more competition in Coursera for Business than we do in Coursera for Campus or Coursera for Government. In fact, a lot more competition. At the same time, you know, it doesn't look as bad in certain dimensions as it did last quarter. We don't know if this is the bottom or exactly, you know, where we're heading with it. You know, it could look—it doesn't look great, and it could look worse, as we sort of look at how it's turning out in Q3. Ken, I don't know if you'd like to add anything to that.
Ken Hahn (CFO)
No, I agree entirely. I think we're the mix comment is exactly right, and we do continue to see growth in both the other newer verticals, and I think that stabilizes us next year. And calling the bottom is always dangerous on the C4B, so I'd be hesitant to call bottom. But we are seeing good signs, and we have a number of initiatives, as Jeff laid out earlier, around translation, around. So there are good things happening. We'll see how the macro goes, but it's competitive, and it doesn't feel terrible, is what I would say.
Jeff Maggioncalda (CEO)
Yeah.
Ken Hahn (CFO)
I wouldn't reword saying it's being overly negative.
Jeff Maggioncalda (CEO)
Taylor, there's one other thing. Yeah, I certainly referenced it in the script, but I'll put a little bit more color on it here. COVID was a shock that immediately caused businesses all around the world to increase their learning and development budgets as people went home, and companies wanted to show support and give them something productive to do in the early stages of COVID. We are seeing something different, but I think a potentially very big that's brewing, which is Generative AI. The number of companies who are starting to say, "You know what?
This Generative AI is gonna change a lot of jobs at my company, and my CFO and CEO are asking me, Head of HR or Head of Learning and Development, "What am I gonna do to teach people these new skills and tools to unlock productivity gains that could potentially create more value for my customers and create more productivity for the company?" We're definitely hearing a lot more interest in organizational transformation and upskilling and reskilling associated with the potential benefits of unlocking Generative AI. And that might be a trend that could provide a little bit of an offset to the headwinds that we've been seeing in Coursera for Business in 2023.
Taylor McGinnis (Equity Research Analyst)
Awesome! Really appreciate the additional color, and congrats on the upside in the quarter.
Jeff Maggioncalda (CEO)
Yeah, thank you.
Ken Hahn (CFO)
Thanks, Taylor.
Cam Carey (Head of Investor Relations)
Thank you, Taylor. That wraps the Q&A. A replay of this webcast will be available on our investor relations website with a transcript in the next 24-hours. We appreciate you joining us.
Operator (participant)
That concludes today's presentation. Thank you for your participation, and you may now disconnect.