MasterClass

Investment Idea Details

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About the company

MasterClass is a streaming platform with training courses from world-famous experts, athletes, and celebrities. The company was founded by Aaron Rasmussen, a Boston University graduate, and David Roget, a Stanford Business School graduate.

The project was founded with the motto "Everyone should have access to genius." That's how in 2015 the MasterClass platform appeared, where you can take cooking classes with Gordon Ramsay, make movies with Martin Scorsese or James Cameron, play tennis with Serena Williams and master anything the most famous professionals in their field can teach.

There are more than 100 courses available on the platform, and each month this number is growing. David Roger, the company CEO, admits that he would also like to invite J. K. Rowling, Elon Musk, Barack and Michelle Obama, but there is no exact information whether he has started negotiations with them. The learning process is organized in the form of video lessons, after which a user can do the homework and share the results with other students. The service works on a subscription that costs $180 per year.

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Risks

MasterClass competes with many players in the market. On the one hand, these are online training platforms: Coursera, Udemy, Udacity. On the other hand, the company also competes with various media content producers, including such streaming platforms as Netflix, Disney Plus, HBO max, Spotify’s music platform, and the audiobook and podcast service Storytel etc. Like Netflix and other streaming platforms, Masterclass constantly invests in the production of video content. This makes the business less profitable than traditional online learning platforms and slows the company’s break-even.

Masterclass’s success depends heavily on its ability to attract celebrities and experts, . and problems in finding them can lead to lower revenues and the loss of clients.

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Market Opportunities

The company's business model is a two-sided platform which links celebrities and the platform users. The former get an opportunity to share the accumulated knowledge and experience and make money on it. For the latter — it's the opportunity to get closer to their role models, get access to exclusive content, motivation and knowledge. The platform is beneficial for both sides, which creates positive network externalities and accelerates the platform growth. The global E-learning market size is projected to grow USD 370 Billion by 2026, from USD 226 Billion in 2020, at a CAGR of 8.5% during 2021-2026. The pandemic has contributed to the market expansion by increasing interest from both students and investors.

Unlike courses on traditional e-learning platforms, MasterClass content is aimed at a wide audience — it is both informative and entertaining. The company's activities go beyond the educational sphere and cover the vast online entertainment market, which is projected to reach $652.5 billion by 2027 with annual growth of more than 20%.

In the spring 2021, MasterClass held another successful investment round. The company plans to invest the accumulated funds in its global expansion — so far, the platform only has classes in English, but almost a third of MasterClass students live outside the United States. Over the next year, it plans to offer classes in Spanish, French and German.

It is also planned to allocate a separate direction for work in the B2B segment. According to the management, companies are interested in working with MasterClass — they can provide their employees with access to the platform as a bonus and use it as a training tool. This will open up new opportunities for MasterClass: according to forecasts, the corporate online learning market will grow by 11% annually and will exceed $37 billion by 2026.

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Financials and Valuation

Over 8 investment rounds, MasterClass has raised a total of $461.4 million in funding from 35 investors, including Fidelity Management (invested in Alibaba), UTA Ventures (invested in Lyft and Radish), Baillie Gifford (NIO investor) and others.

In May 2021, as part of the Series F round, MasterClass raised $225 million at a valuation of $2.75 billion. The company's current private market capitalization is $3.3 billion. We estimate its revenue to be $250 million in 2020. By 2021, it could go up to $400 million. Growth will be driven by international expansion, opening of the new business segment that targets the B2B market and realization of the new courses on the platform. According to our forecasts, the company will have an IPO in 2022. The presence of stars on the platform will help MasterClass promote its public placement.

MasterClass's public competitors, including Coursera (COUR), Chegg (CHGG) and Netflix (NFLX), are trading with an average P/S multiplier of 13x. MasterClass is a relatively young company. This is a fast-growing startup in the premium content segment — we assume that the company will be valued by investors with a high P/S multiplier of 15-20x (P/S Coursera is currently 16x). According to our forecasts, the MasterClass estimated value on the public market will be $6-8billion. The expected yield is 130%.

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