WordDive Group is growing fast
in North America

WordDive Group in a nutshell

WordDive Group Ltd. develops advanced AI-based services for foreign language learning. 

The company has two businesses. The well-established and highly profitable WordDive forms the foundation on which the company's expertise has developed. 

Master English, which focuses on high-level English language skills, is growing very fast and could, if successful, exceed €100 million in revenue by 2026. 

Launched in 2010, the WordDive brand generated a business profit (EBIT) of more than €900,000 last year. This well-established business shows how profitable a SaaS (Software as a Service) business can be at its best. 

With globalization, working across borders in English is commonplace. For skilled professionals, fluency in English tends to accelerate career progression and increase salaries. According to the company's extensive research, many of those who still lack fluency in English are willing to pay to learn and to start immediately.

Master English sales started in 2021. The rapid growth in sales reflects the strong demand for the Master English program. 

Master English growth plan 

Company Data

Our Story

Master English teaches high-level English 

In 2020, the company conducted extensive market mapping to identify the optimal target markets and user groups for the company. 

The objective was to select these markets in such a way that a) the need for learning is very strong, b) the company has a good opportunity to offer a solution that is clearly superior to its competitors, and c) the market is large enough to sustain rapid growth for several years. 

The company started by mapping the biggest education market for mobile apps. More than €200,000 was spent on quantitative market data and survey results, as well as qualitative focus group interviews. 

In order to differentiate itself from competition, the company took advantage of the knowledge gained from the WordDive prep course as well as the opportunity to use the Speak with AI® technology developed with Tampere University (patent pending). 

By comparing the market needs, the competitive landscape, and the company's capabilities, the core of the service was selected to be teaching high level English. This is how the Master English business was born. It launched with a beta release in February 2021 and has since grown rapidly in North America. 

Based on a simple company structure

Ownership structure of the company

The main owners of the company. Includes anyone with a 2% or more stake in the company. 

Founder and CEO Timo-Pekka Leinonen and his spouse Anu Leinonen (founder, M.Sc. in Telecommunications from Tampere University) are the largest owner of the company. 

Modirum Group is the world's leading company in the field of payment card authentication. The Modirum software is used by over 500 cards-granting banks, over 100 000 vendors, over 50 million card owners in over 50 countries to process a daily average of over one million transactions.

Modirum is a company owned by its employees which uses its profits to invest in machine learning and big data -related startup and scaleup companies who have the capacity to grow very large if they succeed.

The company has two share series, WDA and WDB. WDB shares give the right to appoint one board member (Articles of Association § 6). The Modirum group owns all WDB shares. 

Before this issue, €6,717,000 of private money has been invested in the company. The company has received €545,000 in public subsidies and €2,140,000 in publicly supported loans from Business Finland. The company has cumulatively generated €12.6M in revenue by the end of March 2022.

The expertise of the WordDive team has won international awards

Leadership

The market of digital language learning approaching 40 billion euros

Direct consumer purchases of digital language learning services are growing at a very fast rate of 25% per year globally. The market is estimated to reach €39 billion in 2025, with English accounting for more than half of all digital language learning. [HolonIQ 2021] 

The number of students is high at lower skill levels, but the highest value per user usually comes from the ability to carry out demanding tasks in English. On the basis of this and an extensive market survey, the company estimates the share of the overall market for high-level English to be around 10%, or €3.9 billion. 

The target customer: a young, educated professional

The target customer of the Master English service is a 20–40-year-old person with ambitions to get ahead in life, and who typically has at least an undergraduate degree but limited English skills (typically A1–A2).

Typically, the target customers’ experiences of learning English at school are not good. There is a shortage of qualified teachers in Latin America and the overall standard of English teaching is therefore somewhat lacking. Because of their experience, the target customers are interested in trying something new. 

They want the service to be professional, efficient and interactive. It is also central that the service is produced by professional teachers and that in the exercises users get to model their learning based on native English speakers. 

Target customers in non-English-speaking countries typically represent 2–4% of the population. Emerging countries where education has a direct impact on status and living standards are attractive markets. This is particularly the case in Latin America and Asia. However, there is also a strong demand for high English language skills in Europe, for example in France, Germany, Italy, Poland, Spain, and Turkey. 

Solution: The Master English program

Professional fluency is a different game

Language skills are measured with a Common European Framework of Reference (CEFR). In beginner and lower intermediate levels (A1–B1), learning vocabulary and grammar basics are central. Practice can be carried out in the same way for most of the languages. Large companies that teach tens of languages focus on these lower levels, which have the greatest number of learners. 

When aiming for high-level language skills for the working life (B2 ”professional fluency”), the student needs to learn advanced skills, such as: 

• a rhythm and pronunciation of speech that a native speaker experiences as pleasant to listen to, 

• the ability to talk at a normal pace with native speakers, which requires excellent listening skills, in addition to the previous point, 

• the ability to write fluent and detailed texts on both abstract and concrete matters, and 

• understanding and using hints tied to context. 

Teaching B2 level skills fully digitally is challenging technologically and requires several exercises types that are designed based on the language learned. 

When a high school student in Finland gets the grade E (eximia cum laude approbator, the second-best grade) from their final exams for advanced English, they are at a B2 level. The WordDive team has eight years of experience in teaching high-level English reading, writing, and listening as part of the highly popular WordDive prep course. 

In addition, the ability to teach speaking digitally is needed. To meet this requirement, the company has together with Tampere University developed the Speak with AI® technology in 2017–2021. It was taken into use as part of the Master English service in September 2021 and has received excellent feedback from customers. 

”Professional fluency” is a skill level that the company has defined based on its market research and which is narrower than general B2. This helps the company to focus specifically on the target customer of the Master English service. 

The fully digital Master English program

The Master English program is a ready-for-use learning package used entirely in the mobile app. However, it is mainly sold via the website. Selling online allows for the rapid optimization of the sales pipeline and significantly lower commissions for paying for the service than in the Apple and Google app stores. 

The Master English sales pipeline typically starts with ads on social media. The ads are designed to add depth to the brand experience from first contact. 

After being interested by the ad, the customer is sent to the Master English website. There they answer a questionnaire that is optimized based on data. Based on the survey, a personalized program that solves their specific problems is created. 

Master English is priced as a premium service, but one that the target group can afford. In the US it costs $13.99 per month and in Mexico it costs 279 pesos per month (both just over €10/month). 

Many language learning apps offer a wide range of exercises that the user can practice freely. Unlike these, Master English provides a clear path for the user to follow. Its customers appreciate a personalized learning plan and accurate information about their progress: what has already been learned and when will I be able to work in English? 

An essential part of motivating teaching is optimizing the topics, exercise types, and difficulty levels for each individual so that use of the app is varied and effective. 

Sustainable competitive advantage with deep technological expertise

Advanced technological development in language learning started even before the company was founded. Individual optimization (patent 10 074 290 in the US) means that the speed of progress and repetition of individual items is optimized for each client personally. Individual optimization is used in all of the company’s products and has been awarded in many competitions. 

The Speak with AI® technology (patent application 16/684,619 in the USA) teaches spoken English like a private tutor and is already in use in the Master English app. 

Natural language processing and natural language understanding (NLP/NLU) make it possible to learn languages with advanced material that the users themselves generate. 

To reach high-level language skills requires a lot of varying learning material. Not having to produce material beforehand significantly quickens the development of the service. In addition, it makes it possible for each learner to learn with material that interests them. NLP/NLU technology is in test use and meant to be integrated into the Master English service by the end of 2022. In tests, it is receiving appreciative feedback already now. 

The company is actively developing new learning technologies. Currently, there is an ongoing project supported by Business Finland (the national organization for innovation funding) to develop the detection of the fluency of speech and means to measure and demonstrate improvement in language skills. 

Based on the strongly protected Master English® brand

The Master English trademark was validated from dozens of alternatives in market surveys in 2020. To protect its opportunity for rapid international growth, it is registered in countries such as:

Phased rapid expansion

The Master English business is managed using an approach familiar from the world of gaming. The first version of the product is quickly released to the test market, where it is developed to its peak with data-based rapid testing. The first phase of expansion involves rolling out the product to similar markets. Finally, an Android version will be offered alongside the current iPhone version, and the market will be rapidly expanded. 

The challenge is to develop a digital service that can be profitably sold to a significant portion of users in a single market. Once successful, expansion will be relatively straightforward through the addition of advertising channels, operating systems, and markets. 

Go-to-market on the home stretch

Based on market research, Spanish-speaking iPhone users in Mexico and the US were selected as the first markets for the Master English program. Although there are many more Android phones, iPhones form a larger education market in these countries when measured in euros. 

ROAS shows the profitability of digital business 

ROAS (return on advertising spend) measures the profitability of advertising. It predicts how much of the advertising spend spent on acquiring a customer is returned in sales per year. When ROAS is above 100%, sales of the service can be increased profitably and very quickly. 

The ROAS of the Master English service was 113% in February 2022 and 110% in March 2022. 

ROAS is affected by customer acquisition and customer retention. A key measure of customer acquisition for mobile apps is purchase conversion. It indicates how many people who download an app convert into paying customers. 

Customer acquisition excellence through determined work 

When the company started to penetrate the US market with WordDive in 2018, the purchase conversion rate was 0.2%. So, two out of every thousand visitors acquired through advertising bought a language course. On average, iOS app conversion in the US is 2.2% [Qonversion, In-app subscription benchmarks, fall 2020]. That is about ten times better than the company’s starting point. 

However, the company did not give up, and the same team was determined to improve the service based on customer data. As part of the process, the company also decided to change its flagship product from WordDive language courses for all to a highly targeted Master English program. 

Now, in February 2022, the Master English app's purchase conversion rate in the US is 12%, i.e., five times better than the average and amongst the very best of education and well-being services.  

Focus on customer retention in the coming months  

The initial criteria for starting the first expansion phase were ROAS above 100% and monthly sales of around €70,000. Both were achieved in February 2022. In addition, trial sales in South America in February-March 2022 confirmed the demand in the entire Spanish-speaking region. 

A typical user gives a new service only one chance. The better experience they have then, the more likely it is for them to use the service again and to recommend it. Thus, before the first expansion phase, the company wants to implement at least the following three improvements: 

• Visualizing personal progress: building the user a personalized program based on their objectives, setting motivational milestones, and presenting progress in concrete terms. 

• Advanced communication: communicating through personalized push notifications and emails how the user is progressing towards their goal, and what they should do today to stay on track. 

• Motivational tutor videos: integrate short videos into the app that are used to teach and to motivate the user. Based on data, a specific video can be shown at just the right point, creating a personal trainer–like user experience. 

The target is for these changes to raise the ROAS of the service to 120–130% before the first expansion phase starts in fall 2022. 

Android support to accelerate growth in 2024 

In 2024, the Master English program is meant to be extended to Android devices, too. The company uses the Unity platform, so technologically Android support could be released immediately, and an Android version has already been made for internal testing. However, support for hundreds of different Android devices slows down development significantly, so it is deliberately being delayed. 

New markets chosen by testing 

The company has extensive data on digital English learning and the use of educational apps in all major markets. Capturing new markets is planned in stages on this basis, but always backed up by testing. This simply means launching sales in a few promising markets first. Then, the data is analyzed and growth is concentrated on the best one or two. 

Master English sets itself apart from competition by focusing

To the company's knowledge, there is currently no widely known, proven solution for learning high-level English fully digitally. Now, a technologically capable and fast-moving team has the potential to capture a large market share. 

The company believes that for large companies teaching the basics of dozens of languages it will be difficult to achieve a leading position pedagogically, technologically, and brand-wise in a relatively narrow segment where the goal is to achieve comprehensive capability to perform demanding work tasks in English. 

The company monitors a number of language teaching services, but in particular it follows seven companies focused on English language teaching in North and South America. The companies are selected on the basis of revenue, growth, and self-reported information. The companies are referred to here as A–G in order of revenue (A largest, G smallest). 

A focuses on teaching 6,000 English words. The repetition of words is optimized for each user. 

B is an AI-based service that focuses on spoken language skills, especially pronunciation. B competes with the company’s Speak with AI technology, but focuses on only one language skill area. 

C combines diverse digital learning material with online-based, teacher-led studying. In C, a starting level is chosen, but after that each user follows the same path in the app. 

D focuses on teaching vocabulary on topics the user choses. The repetition of words is optimized for each user. 

E focuses on common phrases and idioms. They are learned with the help of small games. 

F offers a broad range of English-language books where you can easily check the translation for words. In addition, F offers vocabulary and grammar exercises. 

G focuses on teaching vocabulary and grammar with exercises and detective stories.

Based on the company's analysis, Master English and C differentiate themselves from other competitors by focusing on serving ambitious customers who want to achieve the broad language skills required for demanding jobs. 

According to the analysis, Master English differs from C by offering a fully digital solution and by building a personalized pathway for each student based on their needs. A personalized learning path has a big impact on the effectiveness of learning and the motivation to study. 

Three scenarios have been drawn up for the development of the company. They differ from each other in terms of the Master English business. 

In all scenarios, the WordDive business is planned to develop with a combined revenue growth rate and EBIT rate of 30%. Based on the history of the business, development plans, strong domestic market position, and rapid growth of the industry, this is considered realistic. 

For the Master English business, the starting point of the scenarios is that in 2022–2023 the business will achieve significant growth in North and South America.

The first expansion phase of Master English in 2022–2023 will be based on a straightforward increase in advertising channels and markets. From autumn 2022 onwards, sales of the service will be increased in markets similar to Mexico and the US. In practice, this means sales to Spanish-speaking iPhone users throughout South America. 

The company conducted trial sales in South America in February–March 2022. It showed that there is demand for the Master English service in the region, and that the advertising and technology work. As a result, the company believes it is likely that expansion will proceed quickly once it is begun. 

The aim of the first phase of the expansion is to use user-generated data and feedback to refine the service to such a high level of quality that it can be extended to Android devices in 2024–2026, and rolled out to Europe and Asia. 

The main difference between the scenarios is how scaling the Master English business globally succeeds in 2023–2026. 

Scenario 1: Unicorn

First expansion phase 2022–2023 

In scenario 1, expansion in all of South America succeeds as planned. In addition, in 2023 the first markets in Europe are opened. In scenarios 2 and 3, the first expansion phase is limited to North and South America, and growth is slower than in the first scenario. 

Fast global growth 2024–2026 

In the scenario of fast growth, the objective of the Master English business is 200% annual growth in 2023–2026. This is meant to be achieved by expanding into the large markets of Europe and Asia so that in each new market a significant market position and profitability are quickly attained. 

According to the company’s current understanding, the most important new markets in Europe from 2024 onwards are France, Italy, and Turkey. Respectively, in Asia the first targets are South Korea, Japan, and Indonesia. They are large markets which, according to research by the company, have a strong need for high-level English skills. 

A revenue of 100 million euros in 2026 would mean slightly over 2% of the market share of the estimated global market for high-level English learning. With an EV/sales ratio of 10, 100 million euros in revenue and in sales in 2026 means a valuation of one billion euros, which is the definition of a unicorn. 

According to the assessment of WordDive Group, scenario 1 requires additional funding of €10M in fall 2023 and €20M in spring 2025. Both additional investments are expected to lead to a dilution of 17% (new shares to be issued at 20% of the number of old shares). 

Scenario 2: Fast international growth

Scenario 2 differs from the first scenario in that growth in North and South America goes according to plan, but for some reason the company does not achieve a significant position in Europe or Asia. 

Less additional funding is needed because new markets are not being penetrated as actively. WordDive Group estimates that this scenario will require an additional €6M of funding in 2023–2024. This additional funding is anticipated to result in a dilution of 17%. 

Scenario 3: Slow growth

In a slow growth scenario, Master English only succeeds in the Spanish-speaking regions of North and South America. Master English revenue catches up with WordDive in 2024, but then for some reason slow down to grow at the same 25% annual rate as the global market. 

In the slow growth scenario, any profit will be invested in growth and no further investment will be made in the company after 2022. In this situation, the natural course of action is to look for cooperation opportunities. In practice, an attempt would be made to spread the company's deep technological expertise to tens or even hundreds of millions of users through licensing or consolidation. 

The revenues from possible licensing have not been estimated and are not included in the calculations presented. 

Comparison of scenarios

Financial figures of the entire company

 The table numbers are TEUR. 

The price per share in this share issue is €22. In the previous share issue in August 2021, the share price was €20. Since then, the WordDive business has demonstrated strong profitability for the full financial year and the Master English business has achieved an excellent level of customer acquisition. 

However, the company would like to further build on the customer retention of the Master English business before rapid expansion begins. For this reason, and in view of the prevailing general economic situation, the share price increase is moderate

The EV¹/sales ratio in this share issue is 6.1, based on the sales estimate of 2022. 

Business value in share issues 2016–2022.  

Russian military action in Ukraine has only an indirect impact.

Russia and Ukraine are not active or planned markets for the company. The invasion of Ukraine is regrettable, but so far it has only an indirect impact on the company. The effects have been taken into account as a moderate increase in the subscription price, even though the development of the company has been very significant after the previous share issue. 

¹ EV, Enterprise value

Use of funds

The minimum amount of the share issue, €500,000, will be used to improve the customer retention of Master English. The aim is to use this investment and the operating profit generated by the WordDive business to make Master English’s ROAS clearly profitable (120–130%) before starting the first expansion phase in fall 2022

Risks related to investing include: 

Macroeconomic risks, such as 

• Coronavirus pandemic or another pandemic 

• The international financial situation 

• Risks related to politics and regulations, including armed conflicts  

Business-related risks, such as 

• Changes in taxation, laws, regulations, authority operations or customs policy in North America, South America, Europe, Asia, or another region’s target country 

• Changes in the level, strength, and structure of demand 

• Competitive situation and excess capacity in the markets 

• The cost variation of digital advertising 

• Environmental, health, workplace, and other legislation 

• Execution of business strategy 

• The extent of insurance coverage 

• Historical growth is not a guarantee of future development 

• Industrial action and other possible business interruptions 

• Product liability and warranty claims 

• Risks related to entry into markets and growing market share 

• Risks related to licenses and licensing partners 

• Risks related to technology and development 

• Risks related to the company’s brands, trademarks, and image 

• Risks related to the operation, delivery capability, and products of subcontractors 

Funding-related risks, such as 

• Interest and currency risks 

• Risks related to possible new share issues and other financing arrangements 

Share-related risks, such as 

• In Finland, there is currently no active marketplace for unlisted shares, so the opportunity to sell shares at a particular moment is very limited, and it is even possible that shares that have been bought cannot be sold later 

• Largest shareholders have substantial influence 

• No authority has assessed the information provided in connection with this share issue 

• Risks related to new share issues or other arrangements 

• Shares are not listed for public trading in any stock exchange 

The risks listed above are not the only risk factors affecting operations of the company. Also other risks and uncertainty factors that the company currently does not identify or currently considers to be irrelevant may have an integral effect on the business operations, business result, and financial standing of the company.

SWOT-analysis

5 May 2022

The share issue of WordDive Group Ltd. has now been oversubscribed. The Board of the company has decided to close the share issue on Friday 6 May 2022 23.59 (CEST).

3 May 2022

The maximum amount of the share issue, €1,999,998, has now been reached.

However, it is still possible to invest in this share issue.  In case of an oversubscription the shares shall be allocated in the order of subscription (“first come, first served”). If some investments that were made before the maximum was reached are not included, an equivalent amount of oversubscribed investments can be included in the issue using the same allocation principle. If an investment is not accepted, the payment made will be refunded.  No interest is paid to the refunded subscriptions.

21 April 2022

The company has decided to provide the most recent financial figures for Master English.

The exact economic figures of the Master English business for March 2022 have now been calculated.

Sales March 2022: predicted €80,000, actual result €90,900

Sales Q1 2022: predicted €200,000, actual result €210,500

ROAS estimate: predicted 110%, updated 117% 

These figures have not been updated to the share issue materials.