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Thinkific is heading to $4.00, says National Bank

National Bank Financial analyst Richard Tse isn’t fazed by a headcount reduction announcement from Canadian online learning platform Thinkific Labs (Thinkific Labs Stock Quote, Charts, News, Analysts, Financials TSX:THNC), reiterating an “Outperform” rating on the stock in a Tuesday update to clients.

Vancouver-based Thinkific, a cloud-based software platform for entrepreneurs and businesses to create, market and sell online courses, announced on Tuesday a reduction in its workforce by about 75 people. The company said the move will held reduce expenses and aid it in reaching positive adjusted EBITDA by the 2023 year end.

“We closed the fourth quarter as expected, and with the initiatives we announced today, profitability is in sight,” said Greg Smith, Co-Founder and CEO of Thinkific, in a press release. “Having said that, any decision that affects people is not easy to make and we understand the impact it has on both the Thinkers to whom we are saying goodbye, as well as the ones who are staying.”

Commenting on the announcement, Tse noted that management reaffirmed its fourth quarter 2022 guidance at the same time, calling for revenue at $13.5-$13.7 million and an adjusted EBITDA loss of $5.1-$5.7 million. Tse estimated the annual savings will be about $7.5 million, along with about $2.0-$2.5 million in restructuring charges in the first quarter 2023.

“The reality is the [announced] moves reflect the moderating growth we’re seeing across many tech names – paired with a recognition of shift in investor sentiment to profitable growth. This evening’s announced move follows on a previous restructuring in March 2022 that saw a ~20 per cent reduction in headcount,” Tse said.

Ahead of the Q4 reporting, Tse said he’s keeping his quarterly estimates as is, calling for sales of $13.6 million and an adjusted EBITDA loss of $5.7 million, which would put THNC at a full-year revenue and EBITDA of $51.2 million and negative $27.7 million, respectively. For 2023, Tse is forecasting $63.5 million in revenue and negative $5.1 million in adjusted EBITDA (previously negative $12.3 million).

With his “Outperform” rating, Tse maintained a 12-month target price on the stock of $4.00, which at press time represented a projected return of 126.0 per cent.

“At 0.15x EV/S on F23 (not a typo), we think the risk-to-reward is compelling. We continue to see Thinkific as an early leader in the online learning market with a competitive platform for content creators. With incremental growth drivers such as Thinkific Payments and Thinkific App Store, we still see an expanded runway of growth from ARPU expansion,” Tse wrote.

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