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COVID-19 is a powerful catalyst for EdTech

Last year, we highlighted the Education sector as having one of the lowest adoption rates of digital technologies. At only 2-3% of total spending in the education sector, it is a lower level than practically every other sector of the modern economy.

We believe that the adoption of digital learning solutions will rise over time and that spending on EdTech will grow annually in double-digits. What we did not anticipate was the COVID catastrophe and the catalytic effect it has had on the education sector. Adoption and usage has swelled and the demand for EdTech solutions has grown as we will see later in this Thematic Insight at extraordinary pace, fast-tracking the digitalisation of Education by 5-10 years.

Table 1. Edtech Adoption Life Cycle

Sources: Credit Suisse, “COVID-19, The (Great) Disruptor of Education & Work”, used with kind permission of EdTechX.

Coronavirus compelled the world’s students and educators to switch to remote learning overnight. According to UNESCO monitoring, 191 countries implemented nationwide closures, affecting around 98% of the world's student population.2 What has followed in recent months is an unprecedented experiment in the rapid adoption of online learning. At the peak of the Coronavirus crisis, more than 90% of the world’s schools and a majority of universities closed their doors and migrated their teaching online. By late April 2020, approximately 1.7 billion students were studying remotely using a mix of workplace and education technologies including Zoom, Google Classrooms and Microsoft Teams.

Unprecedented spike in users

According to language learning app Duolingo, traffic typically spiked 3 to 5 days after the introduction of lockdowns. Traffic doubled first in China, then Korea, and then by 135% in Spain, 100% in Italy and 90% in US. There were two main types of users: students assigned online learning material by teachers, and adult learners stuck at home taking courses. Coursera saw a fivefold increase in new learner enrolments, with personal development courses seeing the highest interest and a 10-fold increase in overall enrollments.3

When the first cases of Coronavirus emerged in China and schools were shut down, online learning companies opened their online courses for free and new user numbers often increased by a factor of ten. Koolearn, GSX and YouDao – the three pure online after-school tutoring services, each had over 10 million enrolments in free courses during this period, which compares to the paid user base prior to virus of hundreds of thousands. Education app downloads in China have soared to 127 million - almost double the pre-crisis figure.4 There has also been a surge in sales of iPads in China as schools moved online, resulting in shortages.5

As the virus spread around the world, EdTech companies around the globe saw similar increase in users. Seesaw, which allows students to build a digital portfolio of work to share with parents or teachers, increased its reach tenfold within a month when schools began to shut down in March 2020.6 Google Classrooms, which allows teachers to send lessons and materials to students, doubled its users to 100 million in March 2020.7 Byju’s, the Indian online learning app, added six million new users the same month.8 In Brazil, Estacio registered 55% growth in pure online distance-learning student enrolments during Q1 2020. In the US, Chegg, a digital textbook company, saw a 35% increase in subscriptions to its online learning services over the same quarter. Newsela, an app providing engaging digital content and learning resources, signed up thousands of US schools within just a few weeks.

Stewardship in a crisis will pay dividends in the future

Supporting students, teachers and families with free access to courses, training and product is a moral imperative in a crisis. That being said, the pandemic was in many ways a boon to the EdTech industry, by exposing customers to a service that, prior to January 24, 2020, they did not know they needed.

It is too early to tell how many of free trial or forced online users will stay on as paying subscribers. However, even if the conversion rate of free trial customers into paying customers is much lower than what it was in the past, that would still mean a significant increase of paying user base, boosting future revenue. A look at the top three players in China also suggests that the free classes offered to students during the coronavirus period may have resulted in a customer acquisition cost reduction of 95%.11 In other words, these companies get a huge boost in revenue with a simultaneous uplift in margins, which may justify outstanding share performance from the pure-play EdTech companies during the COVID-19 outbreak.

The future of learning is EdTech

Just as EdTech companies may have benefitted from the crisis with ’unexpected universal brand awareness’, as it were, the entire industry received a lift in attention and acceptance as a result of the pandemic. Though difficult to quantify in these early days, the pandemic crisis will likely accelerate industry development, with many EdTech companies bringing forward investments into new functionalities. With the extra resources, and a vast population of educators and students who are now much more open to digital learning, EdTech could transform education as we knew it.

Coronavirus had an unintended consequence – it highlighted for educators and administrators, not to mention students and families, that many of these online applications are as effective – and in some cases more effective - than traditional learning models. Coronavirus has accelerated the blended learning model, which empowers, not replaces, the educator. Across both developed and emerging markets, millions of students and teachers have signed up to free versions of EdTech learning apps, and are experimenting with different formats and technologies. Once the world’s students return to the classroom, it is likely that they will continue to use the most engaging subset of these apps. Further, as students embrace the flexibility and adaptive learning advantages that online learning affords, it is likely that many of these technologies will be increasingly integrated into the brick and mortar classroom or university seminar room.

Profound changes in the workforce

Society is emerging cautiously from lockdown and grappling with a plethora of “new normals.” Among them might also be fundamental changes in the workforce. The world will never be the same. The share of flexible working is going to increase and with that the need for technology and automation. Unfortunately, the COVID-19 crisis is likely to have also plunged the world into a deep recession resulting in significant job losses. That means that the need for reskilling of those being laid-off is more urgent than ever for them to be able to quickly re-integrate themselves back into the work force. With that, online professional training and certification sector will see a significant boost in demand.

Table 2. Workforce: The next normal

Sources: Credit Suisse, Chart from “COVID-19, The (Great) Disruptor of Education & Work” used with kind permission of EdTechX

Risks

  • Political developments concerning the education industry could have a significant adverse impact on the edutainment sector.
  • Exposure to smaller companies can result in elevated short-term volatility and may carry liquidity risk.
  • A higher concentration in specific sectors may fall out of investor favor at certain points in time.
  • There are risks arising from a factor bias toward a growth investment style with a particular overweight in small- and mid-cap stocks.
  • Since the fund focuses on highly innovative companies, volatility can be significantly elevated. Exposure to emerging markets may result in even higher volatility.

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