New Starter Position: Pluralsight (PS)

Hi All,

Pluralsight (PS) is a recent IPO that began trading on May 17 of 2018. Bert had written an intro article on them back in early July and also bought shares. The company is in the E-learning business, and before you say oh god not another education company disaster, there is quite alot to like about PS.

After reading the article, I was interested but did not buy any shares, and watched the stock go from around $23 right up to $38 in no time. The company reported great results on thursday, and after a few emails with Bert, I opened a small try out position (<2%) as the stock is now below where it was when Bert first wrote about them. More on the company and results below:

Some years back, the company decided to focus its offerings (which primarily focus on the IT sector) to large enterprises from the self serve variety. It has been very successful so far. By end of 2016, 25% were self serve, it had fallen to 20% by end of 2017, and in the most recently reported quarter it is now down to 15%.

This had led to 6 consecutive quarters of 50% or greater B2B billings growth.

With that, net retention rate to B2B customers continues to improve. It has risen to 127%, up from 125% last quarter and 117% YOY.

Yearly Revenues and Growth Rates:

2015  108
2016  132  (22%)
2017  167  (27%
2018e 230  (38%)
2019e 305  (33%)

As the number of enterprise customers continues to grow, the billings growth is climbing ever higher:

2015 130 (64% billings to b2b customers)
2016 149 25% growth
2017 206 55% growth
2018 264 57% growth (83% billings to b2b)

Enterprise customers:

Q4 2016 12,043
Q1 2017 12,580
Q2 2017 13,214
Q3 2017 13,887
Q4 2017 14,463
Q1 2018 14,830
Q2 2018 15,507
Q3 2018 16,185

B2B accounts with greater than $100k billings has grown from 78 in Q4 of 2016, to 240 in Q3 2018.

Gross Margins expanded to 77% in the recently reported quarter, and management commented on the CC call that they see continued expansion of gross margins.

In the quarter reported last Thursday, Q3 billings growth of 44% to $72.2 million and revenue growth of 42% to $61.6 million.

Net loss per share in Q3 was $0.10, an improvement over Q3 2017 loss of $0.39.

CFFO was $1.9 million, improving over last years negative $6.9 million. Free cash flow was negative $900,000 in the quarter compared to negative $8.8 million last year.

Cash of was $208.6 million.

Deferred revenue was $139.2 million as of September 30, up 58%(!!).

I know Mr. Softy’s Azure is growing like mad, so this snippet from the CC is encouraging:

In addition to expansion, we also saw a strong performance in net new business during the quarter, as demonstrated by nearly 700 new business customer wins. These included a Fortune 100 Multinational Consumer Goods Corporation, a Fortune 100 Multinational Computer Technology Corporation, a Fortune 500 International Business and Technology Consulting Firm, a Fortune 100 Chemical Company, a Big Five Canadian Bank, and a Fortune 1000 Online Investment Platform.

These new customer wins demonstrate that our platform works for any industry at scale. The combination of our acquisition of new customers and our ability to expand within our customer base resulted in a record third quarter for Pluralsight.

Another key element of our go-to-market strategy is our partnerships with strategic technology companies. In Q3, we continue to strengthen our partnerships with Microsoft and Google. At Pluralsight LIVE and Microsoft Ignite, we unveil three Role IQs in collaboration with Microsoft Azure. These roles included, Azure Developer, Azure Solution Architect, and Azure Administrator.

By the end of 2018, we will have over 130 courses and 20 skill assessments tied to these three roles for Azure’s cloud ecosystem. Our enterprise customers depend on Pluralsight as the place to go for skill development on Azure.

This seems particularly relevant in today’s tech world:

Our enterprise customers continue to experience strong value in our platform and I’d like to share a few examples. From one of the largest broadcasting and cable companies in the world, cybersecurity is a major focus. This customer uses Pluralsight to learn skills necessary to prevent cybersecurity vulnerabilities. The skills gained from our platform helps them understand the vulnerabilities they face and to strengthen their security strategies.

A senior architect at the company shared with us that 95% of his cybersecurity knowledge comes from Pluralsight. All industries are navigating through digital transformation. Financial services in particular are turning more and more to technology as a core part of their future strategies.

Saket Kalia

Got it. That’s super helpful. Maybe a follow-up for you James. We’re going through a seasonally strong Q4 given the enterprise sales motion in B2B, can you just talk about qualitatively how the big deal pipeline looks next quarter and sort of how you’ve contemplated that into the guide for Q4?

James Budge

Yes, sure. I’d say a short punchy answers, it feels great. And to give you a more detail, I’d say, we generally don’t plan for big whales to come in. They do from time to time. We’re doing several seven figure deals at any given quarter. But our expectations in any given quarter are not dependent on that. They come in, they’re gravy over the top or they fill a gap somewhere else.

But in general to use the overused baseball analogy, we’re hitting singles and doubles and an occasional triple, and then once or twice during the quarter, we’ll hit a home run. And that’s how we plan out our fourth quarter and we see – what we saw in the third quarter, we don’t see anything different on that in the fourth quarter, still plenty of really great opportunities for us.

If anybody wants a real deep dive on the business and its offerings, I highly recommend reading Berts article dated July 9th. (and a subscription if you dont already!)

With the stock more than 40% off its highs, a great quarter with a beat and raise, (Bert was equally mystified by the drop - only a Raymond James downgrade seems to be the culprit for the shares dropping after earnings - and this analyst was on the call and congratulated them for a “great quarter”! and proceeds to lower his price target lol). I figure it is a good time as any to enter the name. I think the successful pivot to enterprise customers, its growing retention rate, growth in billings, deferred revenue, great suite of products for IT folks, as well as the authors of the classes, contain all the things we look for in a growing company. Management cites at least a $24 billion TAM, seems that could be believable with the amount of training needed in an ever changing IT world we live now. Certainly leaves plenty of room/runway for growth. Could be a developing category killer.

Hope this has been helpful!



That reminds me:
I need to complete my Pluralsight MongoDB course at work.


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Thanks for the post Matt it was very informative, I decided to join with a started position of 1.54%


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