This is my first post and recommendation. I found the board about 3 months ago and have shifted from 54 companies down to 12. From that time I am up about 29.5% which for my portfolio is a drastic improvement. Thank you to all who give so remarkably and generously to the board.
Please let me know where I can improve or any other thoughts for that matter. I am eager to learn and better “convey” what the board is looking for from a recommendation standpoint. I tried to say in line with the “Sample Recommended New Company Reviews” from the Knowledge Base.
Sources: Pluralsight S-1 (https://www.sec.gov/Archives/edgar/data/1725579/000119312518…)
Seeking Alpha article from Bert Hochfeld (July 9th, https://seekingalpha.com/article/4186207-pluralsight-company…)
Medium article from Alex Clayton (April 23, https://medium.com/@alexfclayton/pluralsight-ipo-s-1-breakdo…)
PS - Pluralsight (“enterprise software company committed to closing the global technology skills gap”)
Field: Online Education (E-learning for Professional IT training including cloud, mobile, security, and data)
Market Cap: 3.2B
TAM: $24 billion
Products: Tiered Subscriptions (Individual, Professional, and Enterprise) powered by their proprietary machine-learning technology called Iris to help make recommendations.
Competition: 1) Instructor-led training vendors like Global Knowledge, General Assembly (which was just acquired for $413M by Adecco) and New Horizons 2) Legacy e-learning services from Skillsoft and Cornerstone OnDemand 3) Individual-focused e-learning services like LinkedIn Learning, Udemy and Udacity and 4) Free services like YouTube.
Calculated Annual Recurring Revenue (ARR): Rising at a 38% rate
Revenue: Up 27% to $166.8 million (2017 from 2016)
Billings: Up 38% to $205.8 million (2017 from 2016) and up 43% last Quarter (Business customers’ billings grew 55% last year and 54% last quarter)
Net Loss: $96.5 million, or 58% of revenue, up from $20.6, or 16% of revenue (from S-1, “which reflect our substantial investments in the future growth of our business.”) and Bert states, “The rise in billings growth seems to be correlated with the rise in sales and marketing spend - the market is there, but potential buyers have to know that Pluralsight exists before making a large commitment.” I am getting from this that it costs a significant amount more to get Enterprise customers but those customers will bring in far more revenues at an accelerated pace to far out way the up front cost to get the customers.
Business Model: Shifted in 2011 from in-person training to an entirely cloud-based delivery, they now have ~15K business customers and ~700K total users - 79% of billings came from business customers and 21% came from individual users as of Dec 2017. There also seems to be a big shift to going after Enterprise customers.
Dollar-based net retention rate: 117% - Bert’s article states, “But 117% almost certainly understates the actual expansion rate of the company’s enterprise users. Churn is almost surely high for Pluralsight’s individual users, and the dollar based net retention rate is almost certainly far higher than 117% for enterprise customers who are a substantially increasing part of revenue. Part of the investment thesis for these shares is just that concept.”
Gross Margins: non-GAAP gross margins 76%
Customers: Over 60% of Fortune 500 use Pluralsight (as of Dec 2017). They do not rely on one or two big customers so customer concentration is low.
Pluralsight has a network of 1,350 expert authors in specific subjects related to IT which has produced 6,500 on-demand courses and growing around 80 courses per month.
Pathway to Profitability: Bert’s article states, “There’s no reason to believe that this company will not find the same path to profitability as other high-growth SaaS vendors have seen as their operations expand. I anticipate that the company will provide investors with a business model that shows a path to 20% or greater operating margins.”
Free Cash Flow: From the S-1, “($7.9 million) in 2016 and ($20.5 million) in 2017 and free cash flow included cash payments for interest on our long-term debt of $5.5 million and $6.9 million, respectively.”
Cash/Debt: Currently $28 million cash and $114 debt but should be about $180 million cash and $0 debt (They raised $310 Million cash from IPO and said it is to be used to pay down all of the then outstanding debt).
Founder Led: Aaron Skonnard, CEO and co-founder, has 13.4% of shares.
Glassdoor: 85% Recommend CEO
Conclusion: Could all of this be somewhat of a hidden or camouflaged growth situation? It seems that this company has so many of the items that the board is looking for but maybe I am not seeing it correctly. Since cloud, data, security and the rest of IT is growing like it is, I figured that the training going into it should be a “behind the scenes” opportunity. I apologize if this company has already been discussed, but I did not find any information on the board about this company so I tried to put out what I could to help.
P.S. Currently I have a 4.2% position. Next earnings report is scheduled for 08/01/18.