Docebo is oversold, says Eight Capital

Solid execution on the quarter is a good sign from digital learnings company Docebo (Docebo Stock Quote, Charts, News, Analysts, Financials TSX:DCBO). That’s according to Eight Capital analyst Christian Sgro, who updated clients on the company on Friday where he retained his “Buy” rating on the stock.

Toronto-based Docebo is a cloud-based learning management systems (LMS) provider for mid- to large-sized enterprises, with its platform involving tools for training internal and external workforces, customers and partners. The company delivered first quarter 2022 financials on Thursday, showing revenue up 47 per cent year-over-year to $32.1 million and a net loss of $7.0 million or $0.21 per share compared to a loss of $5.6 million or $0.17 per share a year earlier.

Docebo said it raised its customer count from 2,333 a year ago to 2,947, while its average contract value also grew from $35,739 to $43,875. As for customer wins on the quarter, Docebo said it arranged a new agreement with Bridgestone Americas to deliver training to its more than 20,000 employees, while fintech company Affirm selected Docebo for its compliance and onboarding. Other wins included a global workflow automation software company, US telecom and real estate company American Tower and a North American chain of luxury department stores which expanded its contract with Docebo for onboarding and training.

“Strong execution enabled our Company to deliver another quarter of excellent results across the board,” said Claudio Erba, CEO and Founder, in a press release. “Docebo is at the forefront of a long secular growth trend driven by companies using learning technologies to solve mission critical challenges. We see this macro trend creating a prolonged demand opportunity that is enabling employees, customers and other stakeholders to drive favourable business outcomes.”

Docebo’s Q1 $32.1 million topline was a modest revenue beat of Eight Capital’s forecast for $31.8 million, while its adjusted EBITDA loss of $1.3 million was equal to Sgro’s $1.3 million estimate. Annual recurring revenue of $129.3 million was above Sgro’s $127.9 million. The company had free cash flow of negative $2.3 million compared to negative $2.4 million a year earlier, while its Subscription revenue represented the bulk of sales at 91 per cent of total revenue. (All figures in US dollars except where noted otherwise.)

Docebo’s share price fell almost 13 per cent on Thursday, although the stock is recovering in early trading on Friday. Overall, DCBO is down about 64 per cent since hitting a high of $117.10 last September. Year-to-date, the stock is down by about half.

But Sgro thinks the pullback has gone too far. With his maintained “Buy” rating, the analyst has also reasserted his C$90.00 target price, which at press time represented a projected one-year return of 132 per cent.

“We continue to view Docebo as a market leader in corporate LMS, taking share in North America and internationally with product innovation. We think all LMS vendors are benefiting from the war on talent, where solutions like Docebo’s are serving as more important employee attraction and retention tools. Further, Docebo’s strength in external and hybrid use cases differentiates the company and drives stickiness, in our view. In comparison to SaaS peers, we believe Docebo shares are oversold considering the revenue quality and forward visibility,” Sgro wrote.

On Docebo’ rising average contract value, up by 23 per cent, Sgro noted there were no seven-figure deals in the quarter while about half of the net annual recurring revenue added over the Q1 had an annual contract value of over $100,000. Docebo said it was positive on its recent additions to its sales leadership and Sgro said he expects the additions will add structure to its sales team as the company continues to scale up.

Sgro has revised his estimates on DCBO and is now calling for full 2022 revenue of $150.3 million ($148.3 million, previously) and adjusted EBITDA of negative $2.6 million (negative $1.9 million, previously). For 2023, he is estimating revenue of $220.8 million (previously $199.0 million) and EBITDA of $6.4 million (previously $6.3 million).

“Docebo closed Q1/22 with $212.0 million in cash. Management reiterated its adj. EBITDA breakeven target by year end, which we see as a natural function of scale as opposed to any cost containment efforts. Docebo has not seen any multiple compression in the private market, but would be open to opportunistic M&A, on a functional adjacency or a geographical beachhead like Skillslive,” he wrote.

Sgro estimated DCBO to be currently trading at 4.0x 2023 EV/Revenue, which compares to its peers at 5.9x, while the analyst’s C$90.00 target is based on an 11.0x multiple of his 2023 EV/Revenue estimate.

“We believe Docebo deserves a premium due to its higher-than-industry growth, strong balance sheet, and sightline to near-term profitability despite continued investment,” Sgro said.