Shares of Canadian growth stock Docebo (TSX:DCBO)(NASDAQ:DCBO) have gained 25% year to date, outpacing broader market returns in the process. DCBO stock has, in fact, gained a stellar 661% in cumulative returns since its IPO in October 2019. Let’s see what’s driving the stock higher and if it remains a top bet for growth investors right now.
Docebo is growing at a rapid pace
Founded in 2005, Docebo is an enterprise-facing e-learning platform. It first launched an open-source model that could be installed on enterprise servers. In 2012, the company transitioned towards a cloud-based SaaS (software-as-a-service) business model.
It claims to be the first company to leverage artificial intelligence (AI) and transform corporate e-learning into a competitive advantage for clients who can access data-driven insights and enhance user experience.
Docebo has managed to increase sales from US$17 million in 2017 to US$61.9 million in 2020. In the last 12 months, sales have touched US$82.2 million and are forecast to reach US$103 million in 2021 and US$140.6 million in 2022.
Despite a gross margin of over 80%, DCBO remains unprofitable, as it continues to focus on top-line expansion. However, its operating loss has narrowed to US$5.49 million in 2020 from US$8.88 million in 2019. Analysts expect its loss per share to improve from $0.26 in 2020 to $0.11 in 2022.
Multiple drivers will positively impact DCBO stock
The shift towards remote work has gained pace amid COVID-19. Around 75% of employees are comfortable working from home, and this trend will benefit DCBO stock in the upcoming decade. A company’s employee base can account for over 50% of the total expenses, which means they are an important asset to a business.
While businesses continue to invest heavily in employee development, human resource experts believe organizations will reconsider their approach towards employee training in a post-COVID world.
Docebo’s wide portfolio of e-learning solutions allows companies to create content using AI as well as handle course enrollment and lesson delivery. It provides cloud-based software that can be easily accessed and implemented.
At the end of Q2, Docebo had a customer base of 2,300, including Amazon Web Services, Thomson Reuters, and Hewlett Packard Enterprises. Docebo also outlined a case study where a customer created more than 3,000 courses in 11 different languages for its employees located in 26 countries.
A high customer-retention rate has allowed DCBO to increase recurring sales by 65% annually between 2016 and 2020. In the first half of 2020, recurring sales were up over 60% year over year, indicating that top-line growth remains robust compared to historical figures.
DCBO has also been efficient in its cash burn. For example, the company burnt just US$9 million in cash while its recurring sales rose to US$74 million in 2020, up from US$11 million in 2016. In 2020, the company was also able to report a positive cash flow for the first time ever.
Last year, Docebo spent close to 40% of revenue on sales and marketing. While it’s still reporting a loss, Docebo managed to triple average contract value in the last five years.
DCBO stock is valued at a market cap of $3.6 billion, which means its forward price-to-2022-sales multiple is sky high at 20.5. However, the LMS market might touch US$30 billion by 2025, giving Docebo enough room to expand its top line.
