Indian education provider Byju’s finally released audited financial statements after months of delay, but the disclosures are unlikely to resolve the swirl of controversy around the country’s most valuable startup.
The company reported a 13-fold widening in losses in the year through March 2021, with net losses swelling to 45.7 billion rupees ($575 million) as it boosted spending to bolster growth. Sales were little changed from the previous 12 months however, at 24.3 billion rupees.
Byju’s blamed the performance on changes in accounting practices that led it to defer revenue to subsequent years. It also released unaudited numbers for the year through March 2022 and the following four months showing significant sales growth.
The ballooning losses alarmed investors who in the past two years watched Byju’s acquire a plethora of businesses — perhaps too many. The startup needs to shed non-core assets to streamline the number of its consumer-facing services as well as hold costs in check without resorting to layoffs, said Saurabh Daga, an analyst with London-based consultancy GlobalData Plc.
Byju’s should weather the downturn fine if it takes those steps, given its leadership position and the longer-term potential of online education in a geographically fragmented country, he said.
“Byju’s will likely have to undergo a massive rejig of its business,” Daga said. It “will have to initiate strong measures related with streamlining its product offerings, shedding off the businesses or apps which do not align with its core offerings, as well as overhauling its current business development and sales processes.”
Byju’s has been under regulatory pressure to report financial statements after missing a deadline for doing so by several months. The company has also faced delays with securing more funding and completing a planned merger with a blank-check company in the US after a global technology rout hit valuations.
“The audit delays were initially on account of multiple acquisitions; later, the auditors changed the revenue recognition model so that meant re-working the revenues,” founder Byju Raveendran said in an interview. “Lastly, because of the attention our audit got in the last three months, Deloitte went deeper into the numbers. The numbers have been passed without conditions.”
The startup’s funding hurdles have triggered renewed concerns about India’s consumer technology industry, where public valuations on major players from Zomato Ltd. to Paytm have plummeted this year. Raveendran injected $400 million into his company this year as he sought to convince other backers of its growth potential.
The accounting changes mean Byju’s now recognizes revenue when subscribers actually submit their recurring payments, rather than upfront, Raveendran said. Based on unaudited numbers, sales in the year ending March 2022 increased fourfold to almost 100 billion rupees. In the following four months, revenue reached 45 billion rupees and sales are set to grow at a more than 50% clip this year, Raveendran said.
The company’s plan to list in a US stock market through a merger with a special purpose acquisition company is “on complete pause” following a slump in technology valuations, he said.
“We will observe how things will change over the next 6-12 months,” he said. “Conversations are at a standstill because the IPO market is shut.”
The company has struggled to complete a planned funding round of $800 million — committed capital of nearly $300 million from investors Sumeru Equity Partners and Oxshott Capital Partners hasn’t come in, Raveendran said, adding he didn’t know if the funds would arrive. Byju’s was most recently valued at $22 billion, according to market researcher CB Insights.
Backed by Bond Capital, Silver Lake Management, Naspers Ltd. and Tiger Global Management, Byju’s has sought to expand abroad through big acquisitions. It offered more than $1 billion to buy US-listed edtech company 2U Inc., even as it initially pushed back payments to take over test-preparation provider Aakash Educational Services, Bloomberg News has reported.
After spending more than $2 billion on acquisitions since the start of the pandemic, Byju’s will now take “a measured approach” toward takeovers, Raveendran said. Still, he said potential targets are set to become more attractive in the next 12 months. About 25% of Byju’s revenue comes from outside India, he said.
Raveendran, the son of educators, founded his eponymous startup in 2015. Byju’s, whose parent company is formally known as Think & Learn Pvt, is the largest of a crop of startups that over the past decade have thrived on India’s growing mobile connections and investment from abroad.
The company benefited from the pandemic as students stayed home and people sought to upgrade their skills. Even as schools have reopened, Raveendran is predicting further growth for online education as customers have gotten accustomed to remote studying.
“Learning at home is seeing strong growth even after schools have gone back to in-classroom learning,” he said. “Many higher education startups are scaling extremely well.”