The recent success of the tech IPO market in the form of companies like Dropbox and Zuora was inevitably going to inspire other companies to go public, and now Pluralsight Inc. is the latest entry. Pluralsight had initially filed in early April, but its IPO filing is now open to the public. TechCrunch speculates that Pluralsight “is likely targeting a May public debut.” The company will go on the NASDAQ under the label “PS,” and is underwritten by Morgan StanleyMorgan Stanley and JPMorgan.
We do not know how much Pluralsight intends to raise (it listed a placeholder value of $100 million) nor its current valuation. CNBC reported in December 2016 that its valuation exceeded $1 billion when it underwent a round of private funding. For now, here are the most important facts which investors should consider over the next few weeks.
Preparing the Future
In its SEC report, Pluralsight calls itself “an enterprise software company committed to closing the global technology skills gap.” It creates online software development courses which help individuals improve their technological skills. These courses are used by private individuals as well as businesses looking to train their employees.
Businesses today understand that training is more important than ever, especially in the current jobs market. Thought Business, another online training company, noted that “the online corporate training market is expected to grow by 13% per year, with 77% of US companies offering online training to improve the development of their employees.”
But there are major challenges. Companies spend huge amounts on training only to see disinterested employees fail to retain anything a lecturer has discussed. Furthermore, technology training can quickly grow obsolete, forcing companies to constantly update their classes and find new instructors. Pluralsight thus stands to take advantage of this growing interest in corporate training. By offering cloud-based technology with machine learning, Pluralsight can efficiently tailor their lessons to the student, leaving them free to learn at their own pace and truly retain knowledge.
It should be noted that Pluralsight does face significant competition, from traditional instructor-led training vendors like New Horizons relating to car insurance to free videos on YouTube. But traditional instructors often are costly and sometimes have difficulty scaling up and making sure that everyone in the class is learning effectively, on subjects including car insurance and programming. Free videos can vary significantly in quality. There is a niche for a quality, personalized product and Pluralsight is in a position to deliver.
The Financial Situation
Like most tech IPOs, Pluralsight reports increasing revenue and net losses. Revenue increased from $108 million in the 2015 fiscal year to $166 million in 2017. Net losses however drastically increased in that same time period from $26 million in 2015 to $96 million in 2017.
The massive increase in losses was caused by Pluralsight drastically ramping up sales and marketing expenses, which rose from $44 million to $103 million. Pluralsight also states that “We have invested in and plan to continue expanding our sales and marketing organizations, both domestically and internationally.”
The good news is that this approach appears to have borne results. The number of business customers rose by 40 percent over those two years, and the rate of revenue growth remained consistent over that period as well. Pluralsight also has plans to expand overseas, with an emphasis on multi-national groups and in Europe.
The net loss numbers are concerning and investors should be more concerned if Pluralsight’s growth rate starts to significantly slow down. But Pluralsight is a company pursuing an aggressive growth strategy. Given that they do not have significant debt levels, this is a good strategy for now.
Interesting Potential
As noted above, it is too soon and there is not enough to reach a concrete decision about whether investors should jump in on Pluralsight early. But what is clear is that this is a company in an important field which should be expected to keep growing regardless of which way the economy turns in the future, and all the more so given how aggressively Pluralsight has been pushing a growth strategy. I believe that this is a solid approach under the current hot economic conditions, especially as Pluralsight is looking at expanding overseas.
I would like to see Pluralsight talk during its roadshow about how it aims to become profitable, and not just mumble about how there is a risk that it may never do so. But overall, I believe that this is a company which can be expected to do well out of the gate, and investors should consider giving this company depending on the share price and valuation.