Docebo: A Rare Profitable Unicorn

Learning management systems are widely used by organizations to provide employees with opportunities for further professional development. These software platforms enable on-site, remote and on-demand training, and managers can use them to monitor training compliance and shape future training materials.

With online learning becoming an integral part of education, many businesses have adopted cloud-based learning management software to create, deliver and track specific courses for new and existing employees as well as business partners, contractors and customers. Learning management systems, aka LMS platforms, are useful tools for employee onboarding and professional development.

LMS platforms have various features such as creating and storing content, creating class rosters, managing curriculum content, delivering course content, establishing methods for assessment and testing and fostering interactions between students. Additionally, in the corporate training environment, LMS platforms offer automatic enrollment, manager access, HR integration and reminders for mandatory courses to track employment eligibility, performance goals and course completions.

Docebo Inc. (DCBO, Financial) (TSX:DCBO, Financial) is a software company that offers a cloud-based learning management system to help organizations and companies manage employee and customer training. Its product is highly regarded in the industry, and the company's growth in the enterprise market appears promising compared to consumer-focused internet companies. With the artificial intelligence-based learning suite from Docebo, customers can produce and handle content, provide training, track compliance and evaluate the business outcomes of its learning programs. The Toronto, Canada-based company was founded is Italy and is still founder-lead. Most importantly, the company is actually profitable, which is a rarity among tech unicorns and could indicate a solid foundation for succcess.

How Docebo makes its money

Docebo generates revenue primarily through annual subscription fees prepaid quarterly or annually, with customers having the flexibility to choose contract terms of up to three years. Revenue is based on the number of active users and modules requested. The company aims to grow revenue from existing customers and add new ones. Sales tend to be slightly stronger in the fourth quarter. Docebo operates globally and reports financial results in U.S. dollars despite its functional currency being the Canadian dollar.

Docebo's primary offering is the learning suite, which consists of interconnected modules to form a learning management system in an enterprise. The Docebo learning suite currently includes: Docebo Learn LMS, Docebo Shape, Docebo Content, Docebo Learning Impact, Docebo Learning Analytics, Docebo Connect and Docebo Flow.

Source: Docebo investor materials

Docebo provides services to a variety of companies, including some big names like Amazon (AMZN, Financial) Web Services, DocuSign (DOCU, Financial), Walmart (WMT, Financial) and more. The company specializes in helping medium to large-sized enterprises that need to train their customers, partners and employees. It works best with organizations that are experiencing rapid growth and require a more advanced learning management system than their current one. Docebo's platform is suitable for various purposes, such as customer and partner enablement, sales enablement, employee onboarding and development.

The software is available for enterprises in over 90 countries worldwide, specializing in industries like software, financial services, manufacturing, business services, health care, hospitality, quick-service restaurants/franchises, telecommunications and retail.

Docebo's sales proposition is that customers can use a single platform for all learning needs, improve operational productivity, reduce complexity and leverage cost per user. 65% of its customers use the platform for external or hybrid training. Once an organization standarizes on a LMS platform like Docebo, the stack becomes very sticky as more and more content is generated and managed through the system. Renewal rates are very high and the company benefits from network effect.

Docebo's platform can help sales teams meet quotas faster, keep customers loyal and ramp up new employees more efficiently. It can also onboard and support partners, services teams, marketing teams, franchises and retail locations. The platform helps companies reduce their tech stack and improve operational efficiency.

Stock specifics

Intercap Equity owns 41.4% of Docebo's shares outstanding, while Claudio Erba, the founder and CEO, owns 3.7%. Docebo’s IPO took place on Oct. 11, 2019 on the Toronto Stock Exchange. It subsequently dual listed on the Nasdaq.

The company’s earliest days on the public markets were not very well received. Its stock opened trading at $16. However, the stock caught fire in the market bubble which started during the Covid pandemic, when tech stocks were all the rage. The company also raised additional equity opportunistically, post IPO, issuing new shares.

TSX:DCBO Data by GuruFocus

Growth

The company has been experiencing very strong revenue growth, with increasing deal sizes and high renewal rates. Additionally, its gross margins are in line with other top software companies. Docebo is currently prioritizing investment in marketing and product development, so it is unlikely that earnings growth will increase rapidly in the short-term. However, there is a positive long-term outlook for the company.

Though the company went public in October 2019, revenue growth over the last five years has been nothing short of spectacular, showing that the company has a hit on its hand.

Quarterly revenue has also continued to ramp up quickly and year over year growth is still tracking over 35%.

The company has become profitable recently, which is major achievement given its huge revenue rampup. The following is a diagrammatic representation of Docebo's income statement.

We can see the spectacular ramp of its topline as well as bottom line sprouting green.

The company as of September 2022 has $283 million in cash. Given the company is now profitable and close to free cash flow positive, the balance sheet is in excellent position.

Outlook

According to Docebo, the LMS market will continue growing at a 21% CAGR and is expected to reach a size of $30 billion by 2025, up from $9.5 billion in 2019. The company itself is growing at twice that rate, thus its offerings seem to be resonating strongly in the market. The table in the appendix below compares Docebo's key financial metrics with contemporary cloud based and other fast growing software companies. The company's price-sales ratio of 9.14 is on the higher side, but given that the company has now achieved profitability while maintaining high growth rates, this is not outrageous. The stock is off its bubble peak and is bouncing off its lows. I think the company has a solid outlook ahead, and there is a good likelihood it being acquired by a larger company seeking to grow into the enterprise learning management area.

Appendix