Moneycontrol PRO

Unacademy’s losses nearly double to Rs 2,848 crore in FY22 on higher ESOP costs

Unacademy, however, reported an over 80 percent rise in operating revenue to Rs 719 crore from Rs 398 crore a year earlier. Its total income surged to Rs 845 crore in FY22 from Rs 464 crore a year earlier, thanks to a 2X rise in its other income to Rs 125 crore

October 22, 2022 / 08:02 PM IST
Unacademy founders Roman Saini, Gaurav Munjal and Hemesh Singh.

Unacademy founders Roman Saini, Gaurav Munjal and Hemesh Singh.

SoftBank-backed Unacademy’s losses nearly doubled in FY22 (2021-22) as the edtech startup’s ESOP (employee stock ownership plan) costs rose 2.5X during the period, in another instance of a startup reporting widening losses due to high ESOP costs.

Unacademy reported a net loss of Rs 2,848 crore for FY22 against a net loss of Rs 1,537 crore a year earlier, an internal document seen by Moneycontrol showed. During the period, the company’s non-cash ESOP costs rose to Rs 1,235 crore from Rs 481 crore. Unacademy’s total expenses grew to Rs 3,703 crore in FY22 from Rs 2,030 crore a year earlier. The company’s ESOP expenses accounted for 33 percent of the company’s total expenses.

Unacademy, however, reported an over 80 percent rise in operating revenue to Rs 719 crore from Rs 398 crore a year earlier. Its total income surged to Rs 845 crore in FY22 from Rs 464 crore a year earlier, thanks to a 2X rise in its other income to Rs 125 crore.

The edtech unicorn reported an EBITDA (earnings before income, tax, depreciation and amortization) loss of Rs 2,742 crore for the year against Rs 1,488 crore in FY21. The company’s adjusted EBITDA (adjusted for ESOP costs and impairment charges) loss for FY22 was Rs 1,471 crore against Rs 984 crore in FY21.

Unacademy’s employee benefit costs, including ESOP costs, grew to Rs 1,772 crore for the period against Rs 749 crore a year earlier. Further, the auditors have issued an unmodified opinion on its FY22 financials, compared to its larger rival Byjus, which came under fire for weak internal financial controls.

Unacademy has joined a growing list of startups to report widening losses on account of high ESOP costs. Last month, business-to-business (B2B) manufacturing service marketplace Zetwerk reported an operational loss of Rs 42 crore for FY22. If the number was adjusted for non-cash ESOP expenses, the company had an EBITDA of Rs 57 crore for the year.

Earlier this week, Walmart-backed PhonePe, which is currently in talks to raise a new round at $12 billion valuation, reported a loss of Rs 671 crore for FY22, adjusted for non-cash ESOP expenses.

However, the company’s net loss for the year could be higher as in FY21, the company had reported a net loss of Rs 1,727.9 crore (including ESOP costs) while the company’s FY21 net loss without ESOP costs was Rs 789 crore. Specific numbers for both the unicorns were not disclosed and the companies are yet to file their results with the Ministry of Corporate Affairs(MCA).

Startups had become cautious over spending on ESOPs after unicorns including Nykaa, Paytm, PolicyBazaar and Zomato, which listed on the stock exchanges last year faced shareholder dissent on their ESOP programmes owing to higher expenditures on account of ESOPs.

Moneycontrol had reported last month that the total compensation of Policybazaar’s key managerial personnel (KMP) increased 406 percent to Rs 410 crore in FY22 as share-based payments to these top executives rose five times to cross Rs 406 crore during the period.

For Zomato, the cumulative ESOP cost on account of ESOP rewards to three KMP of the company was Rs 779 crore in all of FY22 and for fintech major Paytm, ESOP expenses of KMP, including CEO and managing director Vijay Shekhar Sharma and chief financial officer Madhur Deora, had surged 50 times to Rs 567 crore in FY22, up from Rs 11.2 crore in the previous financial year.

Unacademy’s widening losses are emblematic of high costs borne by edtech startups to acquire customers. Last month, Byju’s, the world’s most valued edtech startup, reported a 20-fold jump in its losses for FY21 to Rs 4,558 crore. Byju’s spent over Rs 2,500 crore on advertising and marketing for the year, the most for any startup in the country. Unacademy, too, spent over Rs 400 crore in FY21 on advertising and marketing. The company’s promotional expenses for FY22 couldn’t be ascertained immediately, but its other expenses, which include advertising charges, were Rs 1,767 crore for the year.

Edtech companies’ valuations have thus come under the spotlight with investors raising concerns over their paths to profitability and their revenue projections. Edtech companies have thus become conservative on spending as demand for online learning has also fallen post the pandemic with schools, colleges and physical tuition centers reopening.

Many edtech companies, including unicorns like Unacademy, Byju’s and Vedantu have laid of thousands of employees to reduce costs. Moneycontrol had reported last month how Unacademy cut its burn to Rs 50-60 crore a month from Rs 200 crore a month. The company is now hoping to achieve company-level profitability by January next year.

Tiger Global-backed Vedantu, too, cut its burn to Rs 15-18 crore from Rs 65-70 crore a year earlier.

Amid widening losses and slowing revenue growth, edtech companies are also finding it hard to raise funds. Moneycontrol had reported how Unacademy was struggling to close a fresh round of funding at a higher valuation.

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Nikhil Patwardhan
Nikhil Patwardhan
Chandra R Srikanth
Chandra R Srikanth is Editor- Tech, Startups, and New Economy