News & Analysis

Is EdTech a good investment?

27 Aug 2021 | by: Patricia Miller

Is EdTech a good investment?

Education technology (EdTech) has been hitting headlines for the past few years. But it’s taken on a life of its own in the past 18-months. None of us could have predicted the speed we would adopt EdTech as the pandemic hit in March 2020, leaving education services up in the air.

EdTech covers any technology that simplifies learning for children and adults. This embraces classroom assessment tools, education-specific fundraising sites, reader-adaptive eBooks, interactive games, coaching tools and a whole lot more.

As the pandemic hit, nurseries, schools, colleges and universities began closing with little notice. Traditional education systems and classroom learning were put on hold for an undefined period of time.

Early innovators in the EdTech space were suddenly being called upon to pick up the flack and help create a new online normal and ensure minimal disruption to education.

Given the world’s growing reliance on EdTech, investors are now asking is EdTech a good investment and should I buy EdTech stock?

Fundamentals of EdTech stock

As Zoom (NASDAQ:ZM), Peloton (NASDAQ:PTON) and Amazon (NASDAQ:AMZN) solved the social, fitness and delivery challenges posed by lockdown, companies like Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) were racing to assist the online learning community.

EdTech went from serving a small percentage of humanity to fielding requests from every corner of the planet. But it wasn’t just the tech titans of the world that students were turning to. Many unknown players have shot to fame and fortune in the weeks and months that followed.

Throughout the pandemic and as learning institutions closed their doors, EdTech was a godsend. It allowed most children and students the opportunity to continue to learn in some shape or form. If these start-ups are anything to go by, this trend should only get bigger and better in the coming years.

In some ways it has levelled the playing field so that no matter where people live on the planet, there’s a much wider opportunity of educational choice available to the masses providing they have access to a computer and the internet.

It’s clear why demand is soaring, and a recent report from the Association of Southeast Asian Nations (ASEAN) illustrates the rapid growth in the sector.

The number of top EdTech apps downloaded within the ASEAN more than tripled year-on-year between January and August 2020 (from 6m to 20m). This report was commissioned by Google Singapore, Singapore’s state investor Temasek and US management consultancy Bain & Co. Meanwhile US consultancy firm Frost and Sullivan projects global revenues in EdTech to exceed $41bn by 2022.

Apps like Duolingo have made learning languages both easy and fun. For those that get the language-learning bug, Duolingo provides a hugely addictive and competitive environment with scoreboards and challenges. Duolingo’s success soared in 2020 and its IPO debuted in July 2021.

Opening at $139.01 on July 28, the share price is currently $133.48. While other learning based apps such as Kahoot, an app for making quizzes that has long been widely used in learning environments, have also seen a rapid growth.

Boasting over 24 million active users and a share price on Euronext that rose 400% year-on-year. Kahoot achieved revenues amounting to $45.2 million in 2020, an increase of 247% from the $13 million it achieved in 2019. It’s now forecasting revenues of $90m to $100m in 2021.

While Kahoot and Duolingo are household names there are many lesser known companies making strides in the sector. One such company is KidsLoop, which is now reaching an audience of over 25 million children. It has a highly experienced board and is also considering an IPO soon.

Multiverse, previously known as WhiteHat, has just raised £32.3 million in the UK’s biggest ever EdTech funding round. Multiverse aims to provide high-quality education and training through a unique apprenticeship model.

The series B funding round led by General Catalyst, includes notable investors such as Google Ventures, Audacious Ventures, Index Ventures, Lightspeed Venture Partners, and SemperVirens. Multiverse will use the funding to launch in New York and expand throughout the UK.

What is the bull case for EdTech?

Already a world leader in education and with a global reputation for excellence, the Department of Education in the UK released its EdTech strategy back in April 2019. The report set out plans to support innovation and realise the huge potential of technology to transform our schools.

While we don’t envisage a completely teacher-free education system, there is no doubt digital learning has earned a meaningful place in the future of learning.

When working well, it can automate the repetitive and mundane aspects of teaching such as marking papers and tackling the basics of punctuation, times-tables, grammar, etc. But that doesn’t mean it will leave traditional teachers obsolete, far from it.

Their time should eventually be put to much better use, in an actual teaching capacity. This will allow teachers to help students be the best they can be, through personalised teaching, coaching and mentoring where they need it most.

In a traditional classroom setting, countless children slip through the cracks. But in a situation where teachers are overstretched and schools understaffed, digital learning could help equalise opportunities and spot where children are struggling.

As the shape of teaching and the education industry changes in the coming years so will the EdTech offering. The closure of educational institutions during the global pandemic highlighted the need for these institutions to accelerate their digital transformation.

As more and more educational institutions around the world continue to focus on EdTech, companies operating in this space will grow and new competitors will enter the market trying to secure their place as a leading supplier of education technology.

What is the bear case for EdTech?

As with many sectors, there are always factors investors must consider when making the decision to invest in EdTech companies. One of the biggest factors and areas of concern for investors is whether the products and services actually solve a problem or are they just nice to have?

While undoubtedly, EdTech solved a very big problem and provided a continuation of education during the global pandemic, many question whether it is still required to the level it was or if there will ever be that requirement again.

We should also mention the concerns around inequality and poverty, as EdTech is only accessible to students who have access to the internet and the devices that run the technology.

Back in August 2020, the Children’s Commissioner reported that an estimated 9% of families in the UK did not have a laptop, desktop or tablet at home. Ofcom estimated that between 1.14m and 1.78m children in total in the UK have no home access to a laptop, desktop or tablet.

This digital divide in the UK alone leaves many investors sceptical about the future of EdTech. When you factor in what this divide may look like around the world it is easy to see why it makes investors question the future growth of EdTech.

Should I invest in EdTech Stock?

While growth is a given, it’s important to get the balance right. There are clearly many opportunities for EdTech to help students learn. But when it comes to teaching children there’s a fine line between tech literacy and tech addiction. Avoiding the latter is vital for success.

EdTech in its various forms has the power to transform anyone’s life and combined with the power of AI, digital education for all could even break equality barriers. It’s a sector that investors should be monitoring closely.

Valuethemarkets.com, Digitonic Ltd (and our owners, directors, officers, managers, employees, affiliates, agents and assigns) are not responsible for the content or accuracy of this article. The information included in this article is based solely on information provided by the company or companies mentioned above.

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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