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Thinkific Labs has a 142 per cent upside, says National Bank

After third quarter results from Thinkific Labs (Thinkific Labs Stock Quote, Charts, News, Analysts, Financials TSX:THNC), National Bank Financial analyst Richard Tse is staying bullish on the stock, reiterating in a Monday report an “Outperform” rating and C$4.00 target price.

Canadian online course management platform Thinkific Labs reported its Q3 2022 earnings on Monday, coming in with revenue up 34 per cent year-over-year to $13.3 million and an adjusted EBITDA loss of $5.7 million compared to a loss of $6.3 million a year earlier. The company said it expects continued topline growth for the fourth quarter driven by average revenue per user (ARPU) expansion, with Thinkific’s ARPU growth coming from customer upgrades, new Thinkific Plus customers, greater penetration of Thinkific Payments and the company’s revised pricing strategies. (All figures in US dollars except where noted otherwise.)

“We continue to have multiple growth levers in our business, including Thinkific Payments and customers selecting higher-priced plans to reflect the value we deliver,” said CEO and co-founder Greg Smith in a press release.

“One area where we are focused is the improvement of our customer acquisition, which has been relatively flat for the past few quarters. Steve Krenzer, our recently-appointed President, brings significant experience in this area, and under his leadership, I’m confident we’ll see continued improvement in our go to market operations,” Smith said.

Wishpond"

Tse called the Q3 results essentially in-line with expectations, where the $13.3 million topline compared to the National Bank estimate at $13.1 million and the consensus forecast at $13.2 million and the adjusted EBITDA loss of $5.7 million proved better than Tse’s call at negative $6.7 million as well as the Street also at $6.7 million. Tse said the better earnings were the result of cost management and a foreign exchange tailwind.

Tse noted key performance indicators in year-over-year growth in paying customers (up nine per cent), annual recurring revenue (up 24 per cent and ARPU (up 20 per cent), with the company’s Payment penetration now at 18 per cent of Gross Merchandise Volume (GMV). He said while the company’s GMV growth continued to be challenged by tough COVID comps, the flat sequential growth shows signs of stabilization. But Tse also noted management’s caution that customer count is expected to remain stable — a positive from the churn perspective but adding an element of risk to company growth.

“Bottom line, Thinkific remains uniquely positioned in its course creator / learning market with a meaningfully long growth runway particularly given incremental growth drivers like Thinkific Payments, App Store and Partnership Networks. And while the macro backdrop may be challenging, the 0.03x EV/S on F23E offers an attractive risk-to-reward profile,” Tse wrote.

Tse is now calling for full year 2022 revenue and adjusted EBITDA of $51.2 million and negative $27.7 million, respectively, and 2023 revenue and EBITDA of $63.5 million and negative $12.3 million, respectively. At press time, Tse’s C$4.00 target represented a projected one-year return of 142.2 per cent.

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