Lots of upside potential from Thinkific Labs, says ATB

With the macro backdrop at a lull — and the online creator economy, in particular — customer growth has taken a hit recently for Canadian online learning platform Thinkific Labs (Thinkific Labs Stock Quote, Charts, News, Analysts, Financials TSX:THNC). But investors should be focusing on the company’s bottom line, says ATB Capital Markets analyst Martin Toner, who sees a company with a competitive advantage and strong international growth potential.

Toner reported on Tuesday on its hosting that day of a desk presentation with Thinkific, a Vancouver-based software business whose platform helps entrepreneurs and businesses create, market and sell digital learning products. Toner said topics discussed were the value proposition Thinkific offers to creators, how the company stacks up against its competitors and how management plans to address the flatlining of customer growth over the past two quarters, where Thinkific’s paying customers went from 30,700 users in the third quarter 2021 to 33,300 users for the second quarter 2022 to 33,900 users as of quarter three 2022.

Toner said the levelling off seems to be common among learning platforms targeting the creator economy and he related that management is now modifying its go-to-market approach and strengthening its ability to move customers down the funnel from web visits to freemium and on to paying customer and upselling creators to higher-priced plans such as Thinkific Plus.

On the company’s product, Toner said Thinkific’s open API platform is the only one of its kind, as it allows creators to customize their offerings using the company’s app store and to import integrations. 

“Relative to other indirectly competitive adjacent solutions, the advantage of a learning platform like Thinkific’s is that it allows Creators to control their pricing and customers. When Creators value controlling the entire process and future- proofing their businesses, Thinkific has a competitive advantage,” Toner wrote.

Toner said management is focusing its path to profitability on increasing gross profit through increased customer traffic, payments penetration and annual revenue per user but also that the company is looking to cut operating expenses, saying that profitability is now a “medium-term” goal.

Finally, on the international market, where Thinkific generates about 30 per cent of its revenue outside North America, is doing well, Toner said, arguing that the company’s success internationally indicates that its platform travels well and has further growth ahead of it.

With the update, Toner maintained an “Outperform” rating on Thinkific Labs and a one-year target price of $6.50 per share, which at the time of publication represented a projected one-year return of 311 per cent.