Docebo Inc is Carving Out a Niche in Enterprise SaaS

Docebo Inc. (TSX:DCBO), a cloud-based vendor of Enterprise Software as a Service (SaaS) Solutions, began trading on the TSX last October

SmallCapPower | January 9, 2020: Docebo Inc. (TSX:DCBO) is a cloud-based vendor of Enterprise Software as a Service (SaaS) solutions, particularly in the area of employee and customer training. The Company began trading last October, after raising C$67.5M from an initial public offering and is now well positioned to capitalize on the rapid growth of the global training market. The Street consensus price target for Docebo is C$21.00, implying 25% upside from the current stock price.

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Docebo Market Data (as at Jan 7/2020)






Source: Capital IQ

Company Overview

Docebo was founded in 2005, and the Company builds software solutions in the cloud to orchestrate corporate learning. Latin for “I will teach,” Docebo helps companies develop their most important resource: people. Organizations are under pressure to find great people, train them, and be constantly upgrading their skills in a changing business environment.

The Docebo Difference

Source: Company reports

Docebo’s Top Corporate Customers

Source: Company reports

Some of Docebo’s top corporate clients include Uber Technologies, Netflix, Starbucks, L’Oreal, Heineken, and Capital One. The enterprise software space is highly competitive, however learning management and training is an often-overlooked function of many large-cap enterprise software solutions. As such, the space is ready to be disrupted by innovative companies such as Docebo.

Key Investment Highlights

High-growth business. During the first nine months of 2019, DCBO reported $29.2M in revenue, compared with 19.0M during the same period in FY2018, and the average contract value per customer increased to $24,000 (from $18,000). With predictable, rapidly-growing revenue, DCBO is likely to post 35% to 45% revenue growth for 2019 and is looking to maintain that growth over the next 2-3 years with the $67.5M cash injection from the IPO.

Docebo Revenue and EBITDA Forecast (Consensus Estimates)

Source: Capital IQ

Sticky, recurring revenues. In FY2018, 88% of Docebo’s revenues were from subscriptions and its annual recurring revenue was $36.5M. With customer contracts that typically last 3+ years, there is solid visibility to future revenues. The Company’s sales grew to $27.1M in F2018, from $9.9M in F2016, implying ~65% annualized growth. Docebo has identified several opportunities to sustain high growth, including organic growth through sales and marketing campaigns, existing customers expansions, new product offerings, and potential M&A.

Docebo Growth Opportunities

Source: Company reports

High gross margin (~78%-80%) business model. Docebo is still an early-stage company with negative cash flows but has an attractive business model where customers pay up front, reducing working capital requirements. With costs associated with listing and financing expected to diminish in FY2020, and a majority of Docebo’s costs being fixed, the Company can scale its platform significantly with moderate additional costs in marketing and additional sales personnel.

Learning management is a high churn, overlooked corner of enterprise software space. Since learning management and HR systems are often overlooked by large-cap enterprise providers, a large proportion of companies are looking at alternatives for training at any time. Companies such as Uber, Starbucks, and Cineplex, which face constant employee turnover, need effective training program that large-cap enterprise providers overlook. In addition, Docebo is expanding by helping enterprises train their customers, partners, distributers, resellers. This training could help enterprises sell a product more effectively, particularly in a sector such as technology.

Large addressable market. The global learning industry is estimated to be $400B globally, based on estimates by one of Docebo’s competitors, Cornerstone OnDemand. Additionally, Docebo plans to go into training customers, partners, and distributors, which could double its addressable market. Docebo anticipates targeting the tech industry, particularly apps, which operate with small and efficient teams and may have 1,000 customers/contract workers that need training (like Uber, Foodora, and Skip the Dishes).

Key takeaways. Docebo is a pure-play enterprise learning provider looking to disrupt the broader enterprise solutions industry. DCBO has had solid revenue growth over the past three years, which it anticipates continuing for the next several years, becoming EBITDA positive by the end of 2021. With IPO funds ready to add gasoline to the fire, it is earmarked for product development, customer acquisitions, marketing campaigns, and growth through M&A.

Docebo Peer Group (Consensus Estimates)

Source: Capital IQ

Undervalued compared with peers. Enghouse Systems trades at 7.2x NTM EV/Sales multiples, a discount compared with its U.S. and Canadian SaaS peers, which trade at median multiples 8.7x. Docebo has among the highest gross margins and revenue growth of its peer group. As such, we believe that this valuation gap should close as Docebo executes on its business strategy and more investors hear about this phenomenal growth story.

Shares of Docebo closed Wednesday’s trading session down 1.7% to C$16.67. Docebo stock trades at a market cap of C$476.6M.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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