Some analysts think the skill-learning boom eventually will boost
(PS), which offers more than 7,000 courses, for a wide range of technology skills that include cloud computing, security, data analysis, and software development.
Farmington, Utah-based Pluralsight was founded in 2004 as a classroom training company that dispatched instructors to offices and conferences. The company has digitized its products, with a focus on corporate IT skill development, not only with online courses but also programs that gauge and analyze the performance of tech workers.
Today, Pluralsight caters to nearly 18,000 corporate clients worldwide, including around 70% of Fortune 500 companies, according to its investor presentation.
Pluralsight made its IPO debut in May 2018. After reaching an all-time high above $37 later that year, the stock declined and remained at about $20 prior to the pandemic. The stock has gained about 20% this year, hitting a 12-month high close of $22.36 on Aug. 5. Pluralsight shares closed at $20.76 on Friday and are down 0.8% to $20.64 in Monday trading.
In July, the company reported second-quarter results, beating investors’ expectations on metrics including revenue, which came in at $94.8 million, a 25% increase from the same period in 2019, and a non-GAAP net loss of 2 cents per share, improved from a 6-cent loss from a year earlier.
“Good performance top to bottom,” Arvind Ramnani at Piper Sandler said about the results in his July note, referring to the estimate beats and uplifted guidance for the third quarter and full 2020. Ramnani rates Pluralsight Overweight with a $25 price target.
Pluralsight expects a third-quarter net loss in the range of 5 cents to 6 cents, and fourth-quarter loss of 6 cents to 7 cents, Chief Financial Officer James Budge said on a July 29 earnings conference call.
In his July note, Barrington Research analyst Alexander Paris said Pluralsight is trading at a 7.2 multiple on the enterprise value to its estimated 2020 revenue. Based on his analysis, the company is “a small premium” to other education-technology firms, which on average stands at a 5.6 multiple but is “a big discount” to the software-as-a-service peers, which has a 14.8 multiple, Paris said. Paris rates Pluralsight at Outperform with a $24 target price for the next 12 months.
Stephen Sheldon, who covers education-technology companies at William Blair, is optimistic about the macro environment for Pluralsight. The shift from teaching in-person to remote has accelerated in the pandemic, Sheldon told Barron’s.
Analysts say Pluralsight’s stock will eventually benefit from distance-learning trends, but it may take longer than it has for other online- education stocks like
(CHGG). Chegg has gained about 93% so far this year, thanks to the growing demand for college students taking classes online.
In the near-term, Pluralsight’s billings growth will be “a touch slower” due to constrained IT budgets at companies, Sheldon said, but demand could rebound quickly in the medium-term, when macroeconomic trends begin to look more positive.
“Part of that is going to be driven by a significant pickup in technology adoption in areas like cloud deployment, cybersecurity, artificial intelligence and machine learning. There are huge IT skill shortages in these areas,” said Sheldon. “Pluralsight may be one of the best solutions to help with the upskilling and reskilling that might be needed to get some of those strategic projects off the ground,” he said. The analyst rates Pluralsight at Outperform with no price target.
A June survey by McKinsey of nearly 200 corporate executives in North America and Europe indicated a higher demand for technology-related skills. The survey found that 84% of respondents regard reskilling their employees in IT roles as very or moderately important—the highest rate among other corporate functions like sales, finance and communications.
Despite the potential in demand, Pluralsight’s management reckons their clients may hesitate to expand investments in human resources, like IT skill training, in the near-term amid the pandemic austerity.
“It’s true that during the pandemic, we have seen enterprises increase scrutiny on all discretionary spending,” Pluralsight’s Budge said in a statement to Barron’s. “We expect that trend to continue throughout the rest of the year.”
“Long-term, we are optimistic about the prospects of continued and sustained growth as we help our customers ensure their people have the technical skills required to innovate and ensure that they deliver new products in an increasingly competitive world,” Budge said.
William Blair’s Sheldon said that the substantial growth in demand for IT skill training that aids Pluralsight “could happen at some point this year, but probably more likely to happen next year” depending on the coronavirus vaccine development, which may be a green light for corporate investments.
Pluralsight faces competition from swaths of private providers of what’s known as massive open online courses such as Udemy, Coursera and Udacity, and LinkedIn, which is owned by tech giant
Although Pluralsight is “a differentiated, best of breed solution,” the intensifying competition may hinder growth in its core business-to-business operation, Morgan Stanley analyst Josh Baer said in a July note. Baer maintained a neutral Equal-Weight rating, with a $20 price target.
Pluralsight also has offered its learning materials to individual consumers. The company launched the ‘Free April’ campaign, which granted new users access to more than 7,000 courses.
While the direct-to-consumer segment represented only 13% of Pluralsight’s billings in the second quarter, such a campaign is helpful in other ways. Individual users may become internal proponents of the platform within their companies, William Blair’s Sheldon said.
Another potential tailwind for Pluralsight’s consumer-oriented business expansion is a potential stimulus for professional training as the U.S. struggles to mitigate historically high unemployment.
Proposals by the Trump administration and Democratic presidential candidate Joe Biden, if any came to pass, would benefit Pluralsight and other consumer-facing skill education companies, said Jason Celino at KeyBanc Capital Markets, adding that some companies have offered online training to furloughed workers. “Any kind of targeted stimulus for unemployed workers’ skill training could be positive,” Celino said. He rates Pluralsight at Overweight with a $24 price target.