Edtech will continue to grow at an above-average rate in the coming years, predicts Kirill Pyshkin of Credit Suisse.
The COVID-19 pandemic disrupted educational habits and forced universities, companies and students to opt for online learning solutions so that they could continue their education. What will be left of it when all pandemic restrictions are lifted? And how can investors benefit from this development? Update with Kyrill Pyshkin, Credit Suisse portfolio manager.
Why is edtech an interesting investment topic right now?
This is an investment topic that I believe will continue to be relevant for at least the next 5-10 years. It is also a topic that has the advantage of being very specific. This topic focuses on a universe of companies that derive the vast majority of their income directly from services related to educational technology. Of course, we might think that a “tech” giant like Microsoft also provides technologies that are useful in the field of training, but that would represent only a very small part of their turnover. Therefore, we prefer to focus on companies that are still relatively small, which were sometimes starting a few years ago and that only offer solutions related to education technology, whether in the areas of higher education, further education for companies. or applications that are presented in a more playful way.
“The share of digital technologies in education will increase from 3.1% in 2019 to 5.5% in 2025.
We can find a parallel with other areas, such as robotics: in this case, you can buy securities such as Siemens, which also offers solutions related to this activity, but they represent only a very small part of the total turnover of the industrial giant. . That’s why the Thematic Equities team’s investment philosophy is based on “pure players” within their respective areas.
What is the current level of spending on educational technologies (EdTech) and how will they evolve?
This is a thriving field that has been further strengthened by the COVID-19 pandemic. According to HolonIQ forecasts published in February 2021, the average annual growth rate (CAGR) of EdTech spending was estimated at 13.1% before the pandemic – 16.3% after the pandemic. Starting with a total of $ 183 billion in EdTech spending in 2019, research firms estimate that this amount will exceed $ 400 billion in 2025. The share of digital in education will increase from 3.1% in 2019 to 5.5% in 2025 and compared to an estimated 4.9% in 2022.
Are these forecasts not very optimistic and influenced by the phenomenal development of all online services during a pandemic? Now that people are no longer limited because of COVID-19, at least not in Europe, they would rather not go back to class …
No, I do not think that the movement will stop due to the end of the restriction measures. On the one hand, because important developments in online education could be observed before the pandemic – COVID-19 then accelerated the pace of accepting these offers. On the other hand, it must be borne in mind that developments in online education are still in their infancy – with 5% of total spending on the subject being an ‘area that is still very’ at an early stage ‘, as we say in venture capital. Therefore, I think that this topic will still be very topical, at least for the next 5 to 10 years.
“Many companies, for example in the ‘technical’ sector, place less emphasis on their employees’ diplomas than on more specific skills.”
If we look at the geographical distribution of the assets that make up your education fund, the United States remains extremely dominant with an overall share of 37.7%. In Europe, only the United Kingdom is in the top five with a share of 7.1%, behind Japan (22.7%) and ahead of Australia with 6.7%. Is the rise of technology primarily related to education an Anglo-Saxon phenomenon?
There are several explanatory factors for this situation. In the United States, the development of online education and related technologies has been strongly encouraged, firstly, due to the focus on education costs, especially at universities. Tuition, as they say, is often extremely high at universities and often requires students to take out very high loans, which then have to be repaid by those who have studied.
The second explanatory factor is that many companies, for example in the “tech” sector, place less emphasis on the qualifications of their employees or jobseekers than on more specific skills. An engineer who works at Google, for example, can actually use only 10% of what he learned during the training. On the other hand, he will have to fully master certain programming languages or techniques related to its function. Instead of four years of training, some people prefer to go directly to a “Bootcamp” lasting three to six months, which is cheaper for them and allows them to fully master certain techniques. Some IT companies today prefer to select employees, pay for their quick training, and hire them at the end.
“A big problem with MOOCs offered by universities is the low percentage of people who complete these programs – this proportion is often barely 10%.
The third factor explaining EdTech’s rise concerns access to education, especially in developing countries. In China, there may be large classes with fifty or hundreds of children. In India, many students benefit from good training, but resources are often too limited. These situations partly explain the years of underinvestment by several governments. That is why most of the societies that are emerging in our universe are contributing to providing solutions to the achievement of certain UN Sustainable Development Goals (SDGs), in particular those set out in Objective 4 on quality and access to education.
How do you see the development of online courses such as MOOCs offered free of charge by Western universities, including Switzerland: is it a competition for companies active in the field of EdTech – or is it a supplementary offer?
Offers or services offered by education companies often become complementary to the free online course offerings offered by universities. A company like Coursera rarely develops course content on its own, but provides an online platform for providing the course and can also offer solutions that allow you to obtain certifications and even diplomas for the knowledge gained in that course. A major problem with MOOCs offered by universities is the low percentage of people who complete these programs – this proportion is often barely 10%. When people pay to get certified, this proportion increases significantly.
“Some companies rely on training as a way to retain their employees.”
A company like Docebo offers a learning suite that allows all types of companies to create and manage content without having to worry about the technology. The best 2U online learning platforms are used by the best universities in the world.
Edutainment is a combination of the English words “education” and “entertainment”. What exactly is the fun aspect of the solutions and training tools offered by the various start-ups active in the sector?
If you take Duolingo as an example, a company’s approach to language learning applications is a combination of gaming and educational aspects. We also observe that some companies rely on training as a way to retain their employees – for example, offering them continuing training courses in a more attractive form than reading a peer-to-peer link.
Ultimately, are the solutions offered by these various EdTech and Edutainment companies particularly suitable for acquiring specific skills in further education, such as languages or programming languages, or may they also be suitable for basic training?
Of course, there are different ways of approaching education: on the one hand, there is a traditional approach, such as studying at EPF or universities in order to obtain a bachelor’s or master’s degree. On the other hand, various alternatives are currently being introduced, mainly due to the ever-increasing number of online offers, and which consist of offering a series of smaller diplomas. Both approaches are possible, but I observe that the first model, popular in the past, is gradually starting to crack.