The EdTech Investment Opportunity in Brazil
Brazil’s stock index in 2021 and 2022 performed better than other major global indexes, as did Brazil tech stocks compared with the other global tech indexes. Globally, while roughly two-thirds of technology-driven companies are currently trading below pre-pandemic 2020 prices — with some of the major tech indexes declining as much as 50% from their pre-pandemic levels — Brazilian tech stocks, by comparison, have shown notable resilience.
Within education sector, Latin America has outpaced other markets over the past two years. While traditional education stocks in LATAM have performed broadly in line with other global markets, Ed-Tech-focused stock indexes in Latin America (as well as in China) have been more resilient than those in other geographies, as publicly traded Brazilian companies that have been increasing their profits have seen their stock prices rise vis-à-vis companies growing revenue at the cost of margins.
As the cost of capital has continued to rise while the appetite for funding has abated, companies with demonstrated profitability along with consistent top-line growth have seen their stocks rise. Now, in 2023, the focus on near-term momentum is shifting toward companies that can demonstrate profitability. And as the cost of capital continues to increase, putting downward pressure on spending power, the market is signalling a strong preference for companies that can generate cash. Going forward, companies with consistent revenue growth and disciplined financial management that translate into improved profit margins are expected to outperform the market as opposed to those that grow revenue at compromised margins.
Within the edtech sector specifically, Brazil has been attracting the majority of education technology (edtech) investment in Latin America over the past five years, including a high of 263 deals in 2021 alone. Based on the deal traction, underlying market and demonstrated scale of the various edtech segments in the country, six look especially attractive: Sistema (system)/digital courseware, upskilling, online tutoring, learning management systems (LMS), online English language teaching / training (ELT) and higher education (HE) services. Upskilling has been the leading deal sub-segment in Latin America during 2021 and 2022, followed by Sistema/courseware and online tutoring, which received the most investment in the region in terms of value, of some $700 million during 2017-22.
Within these six segments, there are 41 potentially attractive companies, each of which have a demonstrated track record of scaling and fundraising but are at different stages of growth: nascent, rising stars and scaled assets. Key assets in this list have a unique proposition across the value chain, as they differentiate themselves throughout the customer journey from lead generation and on-boarding to quality content curation and delivery along with extensive follow-up and continuous learning support.
In the Sistema/courseware segment, leading providers focus on providing one-stop solutions and expanding their product offerings beyond digital content, whereas there is an emphasis on providing one-stop solutions and expanding product offerings beyond core LMS/SMS in the systems segment. In online ELT, winners differentiate themselves right from lead generation all the way through to student support, while in HE services leading providers are placing a strong emphasis on the delivery of supporting tools and extensive post-usage services.
To learn more about the performance of Brazilian edtech stocks, please be sure to download our analysis.