Amid mass firings, delayed financial results and a standoff with creditors, the world’s most highly valued education unicorn is heading toward an “F” for strategy, unless its founder Byju Raveendran can take the struggling venture back to where it all began for him: the classroom.
The former teacher from the southern state of Kerala got carried away. In 2015, just as a smartphone revolution was about to kick off in India, he launched a learning app. Emboldened by its overnight success, and to wet his toes in the international market, Raveendran acquired US-focused TutorVista from Pearson Plc in 2017. But then, three years later, came Covid-19. Lockdowns and social-distancing restrictions spawned online schooling demand for kindergarten through Grade-12. Byju’s, his eponymously named startup, soared through the pandemic as it bought all kinds of education-services firms with cheap money.
A lot has changed since then. The K-12 market at home has waned, while cost of debt has zoomed. The pricey acquisitions that had once looked mouthwatering must now taste like burned toast. Similarly, web-based classes for coding, music and the arts with 20,000 teachers in 150 countries was at best a sideshow, even before the arrival of creative artificial-intelligence tools like ChatGPT.
As it has always been, the real money is in coaching 16-year-old Indians from big cities and small towns, helping them get into a top engineering, medical or management program. Most will fail because of the sheer demand-supply gap, but all will pay to try. For this segment, online resources like question banks are valuable, but only as a supplement. They are no substitute for talented teachers whose reputations fill stadium-sized classes.
Raveendran, himself a celebrity tutor before the Byju’s app, knew this. The best acquisition from Byju’s spending spree has proved to be Aakash Educational Services, a 35-year-old test-prep firm it bought in 2021 for about $1 billion. Other purchases like the code-writing academy WhiteHat Jr have imploded. No surprise then that the day it skipped a $40 million payment amid a dispute with creditors, Byju’s parent — Think & Learn Pvt. — announced an initial public offering for Aakash next year. It also cut 500 to 1,000 jobs across marketing, business development and product and technology functions. Teams at WhiteHat Jr were also affected, according to the Economic Times.
Now that the cost of money is much more than zero, Raveendran has to slash expenses and steady the balance sheet. But before everything, he must resolve the stalemate with lenders. They have accused the firm of moving $500 million out of Byju’s Alpha, the US borrower. The parent has said that the transfers were not in violation of its loan contract or in any way wrongful. Still, nine months after the deadline, audited accounts for Think & Learn’s March 2022 financial year are nowhere in sight. The company announced a new auditor Thursday after Deloitte Haskins & Sells resigned, citing delays in financial statements. Byju’s also denied media reports that several of its non-executive board members had quit.
With the $1.2 billion loan trading at near-distressed prices of 64 cents to the dollar, vulture funds will no doubt swoop in. They know that the stakes are high for Raveendran. According to the Morning Context, a news website, a legal win for creditors could see them stake a claim on the collateral, including a controlling stake in Great Learning. It's another of Byju’s pandemic-era purchases, for which it paid $600 million, though the Singapore-based firm’s professional courses and university tie-ups make it a valuable asset.
Throw in the recent search at Byju’s offices by India’s anti-money-laundering sleuths, and the startup’s $22 billion valuation is looking hard to sustain. Some investors, such as BlackRock Inc., are already putting a far lower price on their stake. To find its footing, the firm needs Great Learning and Aakash, especially the latter.
Some 200,000 students flock every year to the remote, joyless town of Kota in India’s desert state of Rajasthan to take a shot at one of the keenest pre-university competitions in the world. Across the country, there are several other such centers. The world’s most-populous nation is teeming with hungry teenagers for whom an Indian Institute of Technology education is as much an escapist fantasy as Bollywood, except they expect to be kept spellbound not just for three hours, but a year or two.
New Delhi-based Aakash has heft in Kota’s offline education market, but so do several other dream merchants such as Allen Career Institute, the Walmart of India’s test-prep industry, as well as newcomers like Physics Wallah, run by a superstar YouTube tutor. The family-run Allen has taken $600 million from an investment platform of media mogul James Murdoch and Uday Shankar, a former Asia-Pacific president of Walt Disney Co. Even Singapore’s state investor Temasek Holdings Pte is in the fray, as the backer of Unacademy.
Now that large-language models are taking over online education, Byju’s has to win in the brick-and-mortar “Kota Factory,” which has inspired a Netflix series by that name. A hustling salesforce won’t save the day, nor will the soccer demigod Lionel Messi, a brand ambassador for its social-impact initiative. Only charismatic teachers can help, and they cost up to $1 million apiece.
You can choose your metaphor. For the beleaguered Byju’s, an Aakash IPO will be a match-saving goal in extra time, or a pass in Capitalism 101. But it won't be the happy Bollywood ending Raveendran might have hoped for.
Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services in Asia. Views are personal and do not represent the stand of this publication.
Credit: Bloomberg
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