Kvasir Education : Analysis update following financial report

INDEPENDENT EQUITY RESEARCH

Kvasir Education LTD - Update Report

11.12.2022

Stock Exchange

TASE

Symbol

KVSR

Sector

Technology

Sub-sector

Internet &

Software

Stock price target

NIS 32.9

Closing price

NIS 11.0

Market cap

NIS 43.1 Mn

No. of shares

3.92 Mn

Average Daily Trading Volume

14 stocks

Stock Performance (since Jan. 1, 2022)

-31.7%

Pivoted to B2B focused strategy with Boost product; 1st pilot of Boost product at leading English university; signed agreement with 3rd party for commercialization / platform development; price target is update to NIS 32.9.

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 Q3 2022 and recent months:

• First pilot of the Boost product (the company's B2B platform) at a leading university in England.
• Agreement with a third party for the commercialization and development of a platform for the purpose of marketing the company's content.
• The purchase of approximately 5.39% of the company's shares by Amici AI Ltd. (a company under the joint control of Optimus Education from the controlling owners of the company and Avraham Nussbaum).
• Revenues decreased and operating loss increased compared to Q3 2021.
• Completion of negotiations for a potential deal to purchase Gool Ltd.

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 market penetration strategy is in two channels. In the B2B market the company takes two different approaches: (i) an appeal to universities and relevant stakeholders, and the second includes sublicensing the content owned by the company to third parties. The company started a pilot at a leading university in England; and (ii) direct sales (B2C), and the focus is on focusing on organic customers since these customers are customers with intent in acquiring users and the value of the user's life to start B2B regarding the B2C organic customers.

Significance - The company's market penetration strategy is in two channels. In the business customer market (B2B) the company takes two different approaches. The first approach is an appeal to universities and relevant stakeholders, and the second approach includes sublicensing the content owned by the company to third parties. The company started a pilot at a leading university in England. The second penetration channel is direct sales (B2C), and focuses on direct sales to end customers (students). The company focuses on organic customers since these customers are customers with intent. In the B2C channel, the company reduced its user acquisition activity on social media and other advertising channels and focuses on organic activity.

The purchase of Gool was supposed to be an important milestone for establishing the company in Israel and increasing growth. We estimate that the company will continue to bear significant costs and operational losses in the foreseeable future due to content, product and technology

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

11.12.2022

Key events in Q3 2022 and recent months:

• The company launched its Boost product, a product intended for sale to universities and university libraries. The Boost product is being piloted at a leading university in England.
• In the coming school year (2022-2023) the company intends to focus on organic marketing activity by streaming high-qualitylong-term user traffic and determining the organic channel (customers who come directly to the company's website without performing marketing activity of customer acquisition on social media) as the main source of traffic to the website . This is because according to the activity data of the English site (in the 2021-2022 school year) registrants who arrive through the organic activity convert four times more to paying customers than registrants who enter the site through a sponsored activity. About 10% of the visits to the company's websites came through organic activity and these visitors generated about 25% of the revenues of the users of the company's websites. Accordingly, the company has stopped its customer acquisition activity on social media and the company is focusing on adjusting the current activities to organic activities.
• On June 20, a company jointly controlled by Mr. Avraham Nussbaum through a private company under his full control, which holds 60% of the issued and paid-up capital of Amici, and of Optimus Education (Am. T.N.S.L.) Ltd. is the controlling owner of the company, which owns 40% of Amichi's issued and paid-up capital because Amichi entered into an agreement with Ltd. Group International Tyros which was an interested party in the company, according to which Amici will purchase in an over-the-counter purchase agreement 211,517 ordinary shares of the company, worth 0.001 NIS, held by Tyros, which, as of the date of this report, constitute approximately 5.39% of the issued capital and the liquidation of the company (not fully diluted), at a price of NIS 12 per share. On July 22, Amici informed the company of the completion of the aforementioned transfer of shares.
• On July 18, Gol informed the independent committee of the end of the negotiations for the potential transaction for its purchase, due to disagreements and gaps in the negotiations between Gol and the independent committee.
• On August 15, the company's board of directors confirmed that the company will act to make a structural change in its value through the establishment of a dedicated company that will be fully owned by the company. The special purpose company will be transferred, among other things, contacts with the company's employees, the company's video content and courses, Proprep technology and the company's systems, the company's websites and domains it owns and the company's holdings in its subsidiaries Proprep UK Ltd and Easy Education Ltd.
• On August 29, the company signed a full and detailed agreement with the third party unrelated to the company, which operates in the field of adapting learning materials, for the commercialization and development of the third party's educational platform under the company's branding (White Label), in accordance with the specifications, characteristics and milestones detailed in the agreement.
• • The company will pay the third party a one-time payment - in an amount that is immaterial to the company - for the configuration of the platform which will include, among other things, uploading the company's content to the platform. In addition, the company will pay the third party user fees based on the cumulative number of active users in each academic year, which will be calculated according to the increase in the number of active users.
• It should be noted that in the current school year the company participated in about 10 events at academic institutions compared to about 20 the previous year. Also, the company, as part of a marketing campaign, granted free subscriptions to students until the end of December 2022, compared to the sale of subscriptions at a reduced fee in the corresponding year. Accordingly, the number of paying customers decreased compared to the corresponding period last year and accordingly, the company's revenues in the nine months that ended on September 30 were NIS 118 thousand, a decrease compared to the corresponding period last year.

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

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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.

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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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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