Kvasir Education : Analysis update following financial report

INDEPENDENT EQUITY RESEARCH

Kvasir Education LTD - Update Report

22.03.2022

Stock Exchange

TASE

Symbol

KVSR

Sector

Technology

Sub-sector

Internet &

Software

Stock price target

NIS 47.6

Closing price

NIS 12.97

Market cap

NIS 50.9 Mn

No. of shares

3.9 Mn

Average Daily Trading Volume

71 stocks

Stock Performance (since IPO)

-70.8%

Launch of a B2B product; Signing of an MoU with a third-party for quick penetration into the B2B market; Delay in revenues and increase in cost of revenues; Price target is updated

Kvasir Education (TLV: KVSR) is a publicly traded EdTech company headquartered in Israel and has subsidiaries in the UK and the USA. The group focuses on customized online higher education teaching tailored to students studying subjects in the STEM fields at higher education institutions worldwide through short videos (bite-sized) tutorials in whiteboard technology.

The company activity highlights in Q4 2021 and recent months:

• The acquisition of the Company's shares by Ram On. Currently, Ram-On holds 24.42% of
  Kvasir's issued and paid-up securities.
• The company launched a B2B product, Proprep Boost, to break into the B2B market.
• Signed an MoU with a third-party in the field of learning materials for use of the company's
  B2B platform.
• Revenue more than doubled YoY in 2021, while cost of sales quadrupled and expenses increased for a decrease in the company's net loss.

Market - The global EdTech market spend was estimated at $163 billion in 2019 and is expected to reach $404 billion by 2025, reflecting a 16.3% CAGR growth. Global EdTech venture capital investments have grown 32x since 2010 and hit a record high of $16.1 billion in 2020. The momentum has continued into Q1 2021, which has witnessed nearly $4 billion in global investments. In March 2022, Matrix, a high-tech training company, received a valuation of NIS 375 million.

Strategy - The company's go-to-market strategy is primarily business-to-consumer (B2C), focusing on user acquisition and user lifetime value. With B2B customers, Kvasir takes two different approaches. The first is approaching universities and relevant stakeholders, and the second is sub- licensing its content through third parties.

Kvasir is a start-up company in the preliminary stages of market penetration in England and the US, which has not yet achieved significant revenues; thus, its activities are characterized by a high degree of uncertainty. We estimate that the company will continue to bear significant costs and operating losses in the foreseeable future due to content, product, and technology development and increased marketing and business efforts.

Yield in percent

Lead Analyst

Dr. Tiran Rothman

[e-mail]

Tel.: [phone]

R E S E A R C H & C O N S U L T I N G L T D.

Kvasir Education LTD

22.03.2022

Key events in the passing months and Q4 2021:

• On December 2, Ram On completed the purchase of about 13.86% of Kvasir shares that Tyros held for about NIS 10.9 million (NIS 20 per share). As of the date of publication of this report, Ram On is holding 24.42% of Kvasir's capital and vote rights.
• On February 13, 2022, the company announced the launch of a B2B product, Proprep Boost, in the field of online education. The product will be sold directly to university libraries around the world, in addition to the B2C product that is already being sold to university students.
• • On February 11, Kvasir's subsidiary, Proprep, signed an MoU with a third party operating in the field of learning materials to obtain a worldwide, non-transferable use license on that third-party's B2B platform without branding. The signing of this MoU is a milestone in expanding the company's activities to the B2B market, which includes direct sales to universities, in a way that will allow for quick penetration.
• While revenues more than doubled in FY 2021 to NIS 269K from the previous year, cost of sales more than quadrupled from NIS 383K to NIS 1.33M. R&D, S&M, and G&A all increased as well, resulting in an overall increase in net loss from NIS 10.81M in 2020 to NIS 18.04M in 2021.
• • It should be noted that currently, Content Creation is included in the P&L as a cost of sales for accounting purposes, but in the future, when the company starts earning revenue, this will be recognized as an asset on the Balance Sheet
• 2021 year-end results:
• • The company doubled the number of its courses
  • Marketing expenses totaled USD 390K
  • SEO activity - the company launched a new hierarchy structure - Subtitles and Transcripts
  • • Approx. 550 hours of video have been transcribed and subtitled (out of 1,200)
  • Beginning of development: General chemistry in Arabic, Organic Chemistry Level 2, and Abstract Algebra.

For further details on the company and its markets, please read our initiation of coverage report here.

R E S E A R C H & C O N S U L T I N G L T D.

Investment Thesis

The global pandemic has sparked the world's largest ever remote learning experiment. The pandemic had reportedly caused school closures in about 200 countries worldwide impacting 9 out of 10 enrolled learners or roughly over 1.6 billion people globally. With the outbreak, there was acceleration in the need to shift from brick and mortar approach towards a digital form of education and learning. The pandemic has been a boon to one of the world's fastest growing industries i.e. Education Technology. Though the transition was initially difficult for its stakeholders, it marked one of the most drastic developments in the education history across the globe.

The EdTech industry is currently booming as all educational institutions regardless of their size, are now adopting a hybrid approach to learning. The E-learning industry is anticipated to witness 3X growth between 2015-2025, as a rising number of classrooms continue to move online. As access to the internet grows across the globe, so too has demand for education apps, with a renewed urgency because of the pandemic. In order to keep up with the global trends, the need of the hour for academic institutions and students globally is to adopt tech-based education/ learning. Also, the ubiquitous presence of smartphones as access points and the scalability of digital platforms enable quality education to be delivered across the globe in a cost-effective manner. Not just academic institutions, the economic repercussions of the pandemic have been severe towards enterprise workforce and have resulted in a significant rise in the global unemployment levels, like never before. This has led to an accelerated shift towards re-skilling and up-skilling using online platforms. Individuals are resorting to a much faster and return on investment (ROI)-led means in order to help them secure employment or even support their career growth moving forward. Kvasir Education is placed to be at the forefront of future online education. Kvasir Education helps unlock the potential in each STEM student by simplifying complex study materials into easy-to-use, and personalized tutorials and study guides. The company helps improve understanding on complex topics/ subjects and accelerates students' learning curve. Kvasir Education offers limitless options for course customization allowing the students to study the way that best suits them. Kvasir Education works with esteemed academic leaders and teaching staff round the clock to create quality content on its own to support the learning process for STEM students. This is a key differentiator for Kvasir against its peers as Kvasir create and own the content themselves and do not depend on user generated content unlike most incumbent industry players today. Kvasir Education allows students to access filtered course content

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R E S E A R C H & C O N S U L T I N G L T D.

customized videos and resources for a fraction of a cost againt online tutors. The courses are filtered down to the university, course and modules using their award-winning technology that helps automate the process of customizing learning resoures exactly to a college/university syllabus.

Personalized online video tutorial courses for higher education and Business Function: exam preparation

(Primarily in US and UK markets)

Key Focus Area: Science, Technology, Engineering and Mathematics (STEM)

Short online video tutorials including online workbooks, study guides and practice questions and solutions remains the crux of Proprep's activity in both UK and US markets that they cater to. Focusing on STEM subjects, Proprep has built a vast library of over 1,200 hours of video and about 12,000 online videos tutorials, all ranging between five to seven minutes long.

Proprep's ability to customize its content in minutes to specific university modules, which includes up to 95 video tutorial hours and around 1,200 practice questions and solutions, allows the company to offer an engaging learning solution to students. The company began its operations in August 2014 as a subsidiary of 'Gool', a leading study site in Israel, and since 2019 has been operating separately. More than 500,000 students, most of them in Israel, have used this pedagogical solution in their studies.1

Between September 2018 and February 2019, the company participated in the 'LearnLaunch' accelerator which is considered one of the leading accelerators in the US in the field of innovative learning technologies. The company also won various awards such as the EdTech Innovative and Breakthrough Technology Award on behalf of the International Learning Technologies Conference held in Israel in June 2019 (IES), in which the company was selected by an international panel of EdTech investors.

We view Kvasir Education as a great opportunity for investors seeking to invest in innovative EdTech companies, specifically focusing on online video tutorial personalized education services for STEM studies.

1The above mentioned 500,000 students are mostly from Israel.

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As the owner and creator of its learning content, the company aims to expand its scope beyond B2C activities (selling directly to students), to include B2B activities by partnering with universities, publishers, and additional stakeholders within the Education field. Kvasir's focus on blended learning model is exciting and will help solidify its potential growth value in the coming years.

1. Company Overview

Kvasir Education (TLV: KVSR), hereafter "the Company" and/or "Kvasir" is a publicly traded digital learning platform or EdTech company. The company is headquartered in Israel and has subsidiaries in the UK and the USA (where the company operates under the brand Proprep). The company focuses on providing customized online video courses that include tutorials and study guides for higher education. The company offers technology that helps automate the process of providing customized tutorials to students based on the syllabus of the Universities. The company creates short videos of 5-7 minutes each in whiteboard technology (a lecture where the viewer sees only the content and not the lecturer).

Here's a glimpse of Kvasir Education's journey thus far: the company incorporated in 8/2014 funding during 10/2016 - 4/2017 from private investors, Learn Launch during 11/2018.

Seed Funding for

Completed Initial Public

2014

2020

US$1.7 million

Offering (IPO) of shares

Participation in

raising about US$23

LearnLaunch

million at a valuation of

accelerator program

about US$74 million

	Kvasir			2017-2018		US$4 million bringing				2021
	Education					the total funding to
	Established					US$5.7 million

On November 3, 2021, Ram On entered into an agreement with Tyros to purchase 543,601 ordinary shares of the Company held by Tyros, representing approximately 13.86% of Kvasir's issued and paid-up securities, at a price of NIS 20 per share (hereinafter: "the Agreement"). Prior to the agreement, Ram-On

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