Pluralsight (PS)

Investment Analysis Clubs Saul’s Investing Discussions
1

Pluralsight is a company focused on technology training, they call themselves the enterprise technology learning company. They had an IPO the first part of 2018. I did a search on this board to see if its been discussed before, and HiTechGuy made a post in July, 2018. In the post he has an in depth article he found on the S1.

https://discussion.fool.com/pluralsight-33119892.aspx?sort=whole…

The company has two earnings releases since, both of which have me interested in this company, and I have started a position.

I have a subscription to Bert’s site, and he has a couple of articles on PS and likes them.

Pluralsight made a transition back in 2017 to more of a business focus from individual sales. In the transition, they spent more on Sales and marketing, causing their margins to turn south. They are now getting rewarded for the investment, and are starting to scale, so all margins are improving rapidly.

The Numbers

Revenue growth (%)

2016 22 (full year)
2017 27 (full year)
2018 34 38 42

net retention rate in 2017 of 117%

2Q18

Rev. 53.6 (38%)
Billings 65.3 (+42%)
Gross margin 76% (vs 74%)
Oper. margin -30% (-27%)
net retention rate of 125 (up from 120 last quarter)

2018 Rev. guidance of 222-225 M

https://seekingalpha.com/article/4195375-pluralsight-inc-ps-…

3Q18

rev. 61,6 (+42%)
billings 72.2 (+44%)
Gross margin 77% (vs 75%)
oper. margin -21% (vs -35%)
FCF % of rev. -1% (vs -16%)

2018 rev. guidance raised to 231 M
2019 rev. guidance of 310 M

https://seekingalpha.com/article/4214115-pluralsight-inc-ps-…

TAM

*company says 24 B and expanding

  • more workers changing jobs will require more training
  • less apprenticeship because of employee movement → more training
  • technology is changing faster than ever —> more training

Competitive advantage

  • cites ROI of 295% over 3 years
  • PS is cloud based, training can happen anywhere from any device
  • have added skill assessments, so companies can see deficiencies
  • in 150 countries
  • NPS of 64
  • founder led
  • main competition is class seminars which is outdated
  • PS training is more effective and less cost than class seminars
  • partnered with Microsoft and Google to supply training
  • just partnered with Oracle
  • use subject experts as “authors” to produce training
  • 65% of Fortune 500 as customers, with only 5% penetration within them

I see a lot I like with this company. Revenue growth acceleration, margin improvement, huge and growing TAM, partnerships with top tech companies, etc.

I wouldn’t be surprised if this is a Fool recommendation soon.

Interested in others thoughts on this company.

Jim (long PS)

19 Likes
2

Hey Jim,

I’m with ya. Pluralsight is a very good company, and exhibits all the traits and characteristics we look for here.

https://discussion.fool.com/new-starter-position-pluralsight-ps-…

I took a position back in October and on basically no news whatsoever, the stock has bounced around from $18 to $24 or so during the fall mayhem. It has finally recovered nicely (I’m up 30%), but still trading almost 30% below its highs.

Will be looking forward to Feb 13th earnings report.

Best,
Matt

2 Likes
3

Thanks for adding your post Matt. When I did a search on this board, it never came up.

It would be great if we could add sub folders under this board for each company, it would save a lot of time.

Thanks,
Jim

4

Hi Jim,

That would be terrific! But I wont hold my breath :slight_smile:

I found my October post by pulling up Google Search and entering:

Pluralsight “Saul’s Investing Discussions” site:fool.com

Best,
Matt

1 Like
5

Even though I missed a nice run up, I am planning on starting position in PS for all reasons outlined by Matt and Jim AND for the fact that I was tasked with collecting training requirements for our org (I work in IT in very large tech company) and walked away with many people requesting licences to PS despite the fact that we already all have (free to us) access to many other web-based training. When I was submitting request, management told me to request access for everyone, even if they didn’t request it. I am not talking about the whole IT, just my org specifically and PS seems to be preferred training platform among my colleagues (developers).

Natasha

14 Likes
6

Jimb05,

Thanks for the write up.
Have you by chance looked at the valuation?

It appears Pluralsight has a P/S of about 8 based on 62.472M shares out and I’m using the guidance for the end of the year of $231M. I know Saul doesn’t look at valuation, but I still do and this one seems like it has a decent value given its apparent growth trajectory.

Thanks,
A.J.

2 Likes
7

There is a good analysis of the pluralsight s-1 by a VC whose writings I have previously found insightful

https://medium.com/@alexfclayton/pluralsight-ipo-s-1-breakdo…

Some of it will be out of date, but some may find it useful

1 Like
8

Fourth Quarter 2018 guidance:

Revenue is expected to be in the range of $65 million to $66 million.
Adjusted pro forma net loss per share is expected to be in the range of $0.10 to $0.09, assuming weighted-average shares outstanding of approximately 133.0 million.

Using 133 million shares instead of 62.5m gives a drastically different picture. The price to sales ratio would be around 17 based on 231m in TTM revenue.

Bear

PS - Ethan, if you’re listening, this is an example where it’s important to look deeper.

4 Likes
9

Hi AJ,

The short answer is I don’t pay to much attention to valuation, but do check it to make sure I’m not buying a stock in bubble territory.

I get a P/S of about 17 like Bear, to get that I download the marketcap from Google into a spreadsheet and divide by sales so I don’t know how many shares.

I think a P/S of 17 is a little higher than average. Let me explain.

I thing an average valuation (on a P/S basis) is the growth rate divided by 3.

Some examples.

PYPL is growing about 24% and has a P/S of 8

Google is growing about 21% and has a P/S of 7

Anet is growing about 25% (or will in the future) and has a P/S of 7.5

Newr is growing about 35-36% and has a P/S of about 12.

how about SHOP, growth next few quarters will be about 50%, P/S of 17.

Stocks much higher valued:

ADBE is growing at 24%, P/S of 15 (maybe because it is so profitable)

ILMN is growing at 18%, P/S of 13 ( no competition)

Back to Pluralsight.

I don’t think a P/S of 17 is crazy, or a bubble, because it grew 42% last quarter and is ACCELERATING, which to me, is more important, because it should get a higher valuation in the future if that continues.

Thanks,
Jim

9 Likes
10

Thanks, Bear.
Yep, I just looked quickly and that’s why I asked the question as the PS seemed too low.

AJ

11

Bear, I’m going to assume you didn’t mean to come off so condescendingly. By saying, “PS - Ethan, if you’re listening, this is an example where it’s important to look deeper.” it implies that I don’t look deeper, or that my view of EV/S is somehow not looking deeper. I assure you, I understand the implications of what I use and why. As this is the internet, and you are a nice guy I’m going to assume it was just a poorly worded phrase.

The reason the share count was off for PS was because someone used outstanding share pre-ipo and didn’t look for oustanding post IPO, not because of diluted vs outstanding.

A few things, I think you have misunderstood my position on diluted/weighted/shares outstanding so I’ll rehash it here.

One of the reason I dislike diluted is that it includes all potential shares that could possibly be redeemed. The diluted share count says nothing about when those shares are redeemed or if they will ever be redeemed. I’d rather wait until the shares fall to the actual outstanding shares.
Weighted average shares can get really wonky so shouldn’t be used unless one checks out outstanding shares. In the case of PS their outstanding shares are 135 million from their last 10-q
I personally don’t think EV/S numbers are super useful to compare companies so that is why I say is whatever way you choose to calculate EV it is more important to be consistent in your choice rather than what you choose.
And finally one needs to understand a companies dilution trends, if you want to use diluted EV/S vs outstanding EV/S then great, That seems like a nice way to do it. I just choose to track that separately but i did like how in your post you showed EV/S for diluted vs outstanding. Was a nice way to see the information.

If anything in my post came off as argumentative or attacking…i really tried not to be, my intention were good.

All the best,
Ethan

15 Likes
12

While the Fool is my primary source for investment ideas, I don’t always wait for a rec from them. So I bought PS 12.26 or about 40% ago. I could have bought more but I’d say I have a full position. My main motive was that I think there is going to be a strong continuing need for continuing education. I’ve also been pretty lucky with CRON and I bought TTD before the Fool recommendation. I guess I’m just saying to always wait on the Fool if your really like a stock.

Cheers,
VT

13

Bear, I’m going to assume you didn’t mean to come off so condescendingly

I appreciate that, Ethan. You’re right, it was poorly worded. I definitely didn’t mean to imply you were being sloppy. Just trying to put in a plug for my method.

And you’re right about me misunderstanding your method. For some reason I thought you were using weighted shares and even quoted it somewhere, but I probably just remembered wrong.

I personally don’t think EV/S numbers are super useful to compare companies…

I wouldn’t use them in isolation, but if you don’t use them comparatively, what good are they? A company’s EV/S may be coming down, but if it’s 200, that’s not so good when other companies that are otherwise similar can be had at an EV/S of 15 or 20.

Bear

3 Likes
14

bear, my apologies! I didn’t see your reply. I didn’t mean to leave you hanging.

I appreciate that, Ethan. You’re right, it was poorly worded. I definitely didn’t mean to imply you were being sloppy. Just trying to put in a plug for my method.

no worries.

And you’re right about me misunderstanding your method. For some reason I thought you were using weighted shares and even quoted it somewhere, but I probably just remembered wrong.

i think the post you are referring to is me explaining why weighted shares can be so wonky and generally agreeing with gauchochris on why they shouldn’t be used.

I wouldn’t use them in isolation, but if you don’t use them comparatively, what good are they?

I like to use them for entry and exit points for a company. I.E. This is all from memory so my numbers might be a little off. AYX I initially bought at something like 24 or 27, it promptly jumped rocketed up into the 60’s or something Then in october dropped to the low 40s. I backed up the truck in the low 40s because the EV/S had come down from 20ish down to 13…around my entry point despite awesome continued performance. My position had gotten really really big (for me) so I trimmed when its EV/S hit 24 a while back, but then bought all back in when the EV/S hit 16 in december.

A company’s EV/S may be coming down, but if it’s 200, that’s not so good when other companies that are otherwise similar can be had at an EV/S of 15 or 20.

you are absolutely correct. I didn’t mean to imply that I don’t use it to compare at all. I think you said it better than me when you said, “I wouldn’t use them in isolation” I find them to be a good starting point. For example, ZUO at first blush looked interesting to me at an EV/S of 20, but once I looked at the numbers they were a situation where the growth was falsely elevated by their professional services.

1 Like