Two reasons why Docebo is down 67 per cent

It’s been a long way down for tech growth stocks this year and that includes Canadian online learning platform Docebo Inc (Docebo Stock Quote, Charts, News, Analysts, Financials TSX:DCBO), which was once the darling of pandemic plays but has now fallen on hard times.

But there’s a method to the market madness with a name like Docebo, says portfolio manager Mike Archibald, who thinks the stock could be in for a solid rebound.

“Docebo is a company that I’ve owned in the past. We participated in the IPO on the stock and it had a really nice move here. Then like a lot of other technology stocks it has sold off,” said Archibald, vice president at AGF Investments, who spoke on BNN Bloomberg on Wednesday.

Toronto-based Docebo has cloud-based learning modules for SMBs as well as enterprise clients. The company is close to 3,000 customers currently for whom it delivers employee training and retraining modules, a facet of the economy that did very well over the pandemic as businesses around the world continued their digital transformations amid work-from-home environments.

The market picked up on Docebo’s potential early on, lifting the stock from around $17 to start 2020 all the way to about $80 per share by the end of that year. 2021 started out just as hot, as DCBO reached an all-time high of $117 by mid-September. 

But it’s been mostly downhill since, with DCBO trading in the mid- to high-$30 range over the month of June, a loss of about two-thirds of its value in the span of nine months.

Archibald says the cause is a combination of a let-up on revenue growth for the company and wider market forces losing patience with companies like Docebo that are still posting negative earnings.

“I think this stock has come under pressure for a couple of reasons. Number one, the top line growth has been around the 50-55 per cent range for a number of years but that’s been slowing a little bit here, just given the size of the business, now into the 40 per cent range. It’s still very good but obviously a little bit slower growth,” he said.

“And then, like a lot of other technology stocks they don’t actually make any money at the moment in terms of EPS or EBITDA and those stocks have come under a tremendous amount of pressure as interest rates have gone up and valuations have compressed,” Archibald said.

Docebo reported first quarter 2022 results in mid-May where its Q1 revenue was up 47 per cent year-over-year to $32.1 million, with Subscription revenue making up $29.1 million of the topline. Gross profit came in at $25.5 million or 80 per cent of revenue, but the company’s net loss was $7.0 million or $0.21 per share compared to a net loss of $5.6 million or $0.17 per share a year earlier. On an adjusted basis, Docebo’s EBITDA was a loss of $1.3 million compared to a loss of $2.5 million a year ago, while free cash flow stood at negative $2.3 million for the quarter compared to negative $2.4 million for Q1 2021.

“Strong execution enabled our Company to deliver another quarter of excellent results across the board,” said Claudio Erba, CEO and Founder of Docebo, 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 is still racking up the client wins, listing off, among others, Bridgestone Americas, fintech company Affirm and American Tower all as new customers to Docebo’s platform over the first quarter.

Archibald said Docebo’s future is still bright but it might take a while for the market’s tide to turn in favour of tech growth stories like this one.

“I think the fundamentals of the business are still quite good. I follow the company closely and they’re still continuing to add new customers and the size of contracts is continuing to move in the right direction,” Archibald said.

“I think as we get closer to the end of the interest rate hiking cycle, which hopefully will be later this year, and they start to turn the corner on profitability, which looks like it’s going to be a 2023 event, this will be a name that I think investors will come back to,” he said. “There are lots of tailwinds, I think, in the online learning space, and Docebo is a well-managed company. I think it’s one that you can look at as we get later into 2022.”