Coursera (NYSE: COUR) is an education technology stock that is finally seeing some positive momentum. Since going public in March 2021, shares have lost 82% of their value from their initial price of $39. However, over the last three months, they have been recovering modestly, up 22%.

Bank of America has noticed its valuation feels depressed, prompting it to initiate the firm with a buy rating. Its price target indicates an upside of 39%, and compared to some other analysts, that’s nothing. RBC’s $18 price target indicates Coursera could generate more than double-bagger returns from its less than $8 share price now.

I’ll explore Coursera's business and growth vectors and detail what I want to see next from the consumer discretionary company.

Coursera: Educating Consumers and Employees in High-Demand Fields

Coursera primarily generates revenue through its consumer and enterprise education solutions, which made up 57% and 34% of revenues in 2023, respectively. For consumers, Coursera offers a variety of professional certificates and classes. It works with big companies like Google (NASDAQ: GOOG) and IBM (NYSE: IBM) to develop some of these, as well as hundreds of universities. Many of the courses are in STEM-based fields, teaching people skills they need to get entry-level jobs in related industries.

The company provides services similar to those of businesses and academic institutions for enterprises. At the end of 2023, the company had around 1,300 enterprise customers. By the second quarter of this year, that number was 1,511.

The company’s last big revenue stream is its degree segment. There, universities partner with Coursera to deliver fully online bachelor’s and master’s degree programs. This segment stands out as Coursera does not have any expenses when it comes to developing the content, giving the segment a gross margin of 100%.

The other segments have solid profitability as well, with consumer and enterprise having gross margins of 54% and 68%, respectively.

Profitability Is Improving, but Growth Needs to Be Reaccelerated

However, once accounting for the company’s operating expenses, profitability goes out the window. In particular, the company’s marketing and sales expenses were equal to around 34% of revenue last quarter. The company’s operating loss was $31 million in Q2.

However, on an adjusted basis, it was able to record positive net income of nearly $14 million. All in all, the company is growing closer to consistent profitability. It’s been successful in lowering its research and development (R&D) and sales costs as a percentage of revenue. But, growth is noticeably dropping. Last quarter, revenue growth of 11% was nearly half of the 21% growth seen in 2023.

MT Newswires reports that Bank of America believes the company can boost revenue growth as firms increase budgets for AI training. The company just released a slew of new courses with IBM and Microsoft (NASDAQ: MSFT) for using generative AI in the workplace. To me, this argument makes sense. With massive investments in AI in recent quarters, companies must train employees to use it. Without this, they won't seem maximum efficiency gains.

Additionally, there is evidence that Coursera has expertise in AI. OpenAI, the maker of ChatGPT, recently hired Coursera’s former chief revenue officer. They will lead the company’s efforts to bring its products to more academic institutions.

Coursera Has a Big Opportunity To Educate Workforces in Gen AI

It's fair to question if the company must raise its R&D, sales, and marketing costs again to get customers to use the new offerings. However, the company has thus far been able to reduce these costs while expanding its offerings and enrollment for Gen AI products. This points to the idea that rather than increasing R&D spending, the company has been able to simply shift what type of content it spends on.

This year, the company’s Gen AI product enrollments have quadrupled from 2023. Customers seem to be seeking these Gen AI products out, rather than Coursera having to spend to make them aware. However, most of this demand so far has come in the consumer segment.

The real money could be made in enterprise. With enterprise revenue growth sluggish at 8% next quarter, I’ll be monitoring pickups in growth for that stream and mentions of it coming from Gen AI offerings. Coursera has a large opportunity here, but evidence of revenue generation is needed before buying in.