As edtech companies in the country struggle to turn a profit, Byju’s has faced mounting tensions with its creditors and recently announced plans to cut 1,000 jobs, only six months after a major layoff spree.
Financial Mismanagement and High Expenditures
— Business Standard (@bsindia) May 31, 2023
One of the primary reasons behind Byju’s current predicament is its financial mismanagement and excessive spending. In FY21, Byju’s operating income saw a mere 4% increase compared to the previous year, while its losses soared by 14.9 times.
The strain on Byju’s financials is evident in its significant expenditures on advertising campaigns, often relying on high-profile endorsements to create brand awareness. Moreover, the company’s provision of generous employee perks and benefits has led to increased operating costs.
Expenditures related to legal fees and compliance have further burdened its finances. These escalating expenses, coupled with declining EBITDA margin and ROCE, have placed Byju’s in a precarious financial position.
Overreliance on Hardware Sales
Byju’s revenue streams heavily depend on the sales of edtech products, such as laptops, tablets, and tech-enabled devices, which accounted for 81 percent of its total income in FY21. However, during the same period, this revenue stream witnessed a decline of 9.5 percent.
Relying excessively on hardware sales poses a risk, especially when the market becomes saturated, or consumer preferences shift and added to Byju’s troubles. To mitigate the impact of fluctuations in hardware sales, Byju’s should have diversified its revenue streams and expanded its offerings.
A comprehensive approach involving digital subscriptions, content licensing, and strategic partnerships could have provided a more sustainable revenue base.
A notable example of successful diversification is Ulipsu, an Indian edtech company that not only offers digital subscriptions for educational content but also provides value-added services like personalized learning plans, skill-based courses, and one-on-one tutoring support.
Such diversification has reduced Ulipsu’s dependence on hardware sales and allowed it to adapt effectively to changing market dynamics and customer preferences.
Inadequate Revenue Recognition and Deferred Profits
Another aspect contributing to Byju’s troubles is its inadequate revenue recognition practices. Byju’s has admitted to deferring around 40 percent of its profits to future years, potentially presenting an inflated picture of its financial performance in FY21.
The company attributes this deferred revenue to changes in revenue recognition due to a COVID-related business model transition.
However, such practices can obscure a company’s true financial health and lead to unrealistic projections. Byju’s should have implemented transparent and accurate revenue recognition methods to provide stakeholders with a clearer understanding of its financial position.
Questionable Business Practices and Layoffs
Byju’s troubles mounted with its business practices and employee layoffs. Recent reports suggest that the company has laid off approximately 1,000 employees. In 2022, Byju’s received criticism for laying off over 2,500 employees, despite claiming significant growth and popularity.
Dissatisfied employees accused Byju’s of abrupt terminations, poor communication, and a lack of support during the transition.
These actions not only tarnish the company’s reputation but also raise questions about its ethical standards and employee welfare. Byju’s should have prioritized effective communication and handled layoffs with sensitivity, ensuring support for affected employees during their transition periods.
Failure to Adapt and Innovate
While Byju’s initially gained prominence for its innovative approach to edtech, it appears to have faltered in keeping up with the dynamic market landscape. The rapid growth of the Indian edtech industry demands continuous innovation and adaptation to meet evolving customer needs.
Byju’s, with its focus on hardware sales and questionable revenue recognition practices, may have lost sight of the need for disruptive and cutting-edge educational technologies.
The company could have invested in research and development to enhance its offerings, leveraging emerging technologies such as AI and virtual reality, and providing a more immersive learning experience. This failure to stay at the forefront of innovation could hinder Byju’s long-term success and competitiveness in the market.