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Organizations are increasingly using technology to gain strategic competitive advantages. A problem for employers is an overall lack of technology-based skills across the workforce. Pluralsight (PS), provider of a cloud-based technology learning platform, is one vendor leading the disruption in corporate training.
Pluralsight management has referred to the company as “the supply chain” of technology skills. The Pluralsight platform offers high-quality online content—the library currently contains more than 6,700 on-demand courses taught by leading experts—tailored to the needs of individual users.
A proprietary machine learning algorithm is behind Pluralsight’s ability to accurately assess worker technology skills in less than 10 minutes using a 20-question test. In addition to current employees, the Pluralsight platform can be used to assess the technology skills of potential employees, helping to streamline the recruiting process.
After analyzing the test results, the platform generates a technology proficiency score for the user (based on a scale from zero to 300). The score shows the exact skill sets that need the most improvement, then recommends specialized learning paths (a set of training courses) designed to expand overall knowledge related to specific tech topics. The company’s top content verticals at the moment are the cloud, AI, machine learning, data sciences and cybersecurity.
There are about 102 million global technical workers, with an estimated $24 billion spent annually on training related to technology topics, according to Morgan Stanley. Organizations with well-trained technology workforces are better positioned strategically, as employees are able to perform their jobs most effectively. A happier workforce leads to better employee retention rates and faster new product development.
For the average Fortune 500 company, about 80% of training budgets today typically go to classroom training. The remainder of the market is made up of a combination of learning management systems and e-learning.
As the global corporate training market steadily shifts more toward improving technology training, Pluralsight’s overall opportunity will only get bigger.
The company’s overarching goal is to consolidate all of the fragmented classroom training specialty providers into one cloud-based solution that reaches economies of scale in the most cost-efficient way. Learning management systems are a more limited competitive threat because they tend to provide generalized training compared to Pluralsight.
Pluralsight offers training courses for consumers, but the real growth opportunity is with business customers. In the fourth quarter of 2018, Pluralsight’s business-to-business (B2B) billings of $87.1 million (accounting for 86% of total billings) rose 51%, marking the seventh quarter in a row of growth above 50%. In 2018, the B2B dollar-based net revenue retention rate rose sequentially each quarter, ending at a healthy 128%.
Pluralsight counts about 70% of the Fortune 500 and nearly 40% of the Global 2000 as customers. The company has a long runway for growth in the enterprise market, as its average penetration rate across its Fortune 500 customer base is only 5%.
There are more than 1 million individual users on the Pluralsight platform across 150+ countries. The company’s customers are spread across many different industries, with financial services and technology being top verticals. Pluralsight’s customer base includes some big names—including Morgan Stanley, Microsoft, Comcast, Best Buy, Target and Chevron.
Starting in 2016, Pluralsight began to expand its focus on the enterprise market, ramping up the hiring of quota-based sales reps to better educate large organizations about the strategic value of technology skills training for workers. In 2018, the company’s total sales rep count rose 50% to 240. Pluralsight this year is on track to hire at least 60 new reps.
Since it takes the average new sales rep about two years to reach full quota capacity, the company’s results this year should get a boost from the 2017 hiring spree, when the number of reps doubled.
Demand for Pluralsight’s enterprise offering has been picking up. While 20% to 25% of the current customer base is using the enterprise version (now priced at $779/user annually), 30% to 40% of new billings are associated with the premium offering. At the end of Q4, Pluralsight had 275 business customers with more than $100,000 in annual billings, up 76% year over year.
Higher pricing schedules instituted over the past year have helped lift Pluralsight’s ASP by about 30% on new deals. Strong pricing power is one metric in the software sector that tends to get rewarded by investors. For 2019, the company expects price increases to account for about a third of total revenue growth, with two-thirds coming from new users.
In 2018, Pluralsight’s total revenue rose 39% to $232 million. Billings of $293.6 million were up 43%. The company’s latest 2019 revenue guidance range of $306 million to $314 million represents growth of 34% at the midpoint. That forecast is up from the initial top-line guide of $290 million to $305 million given at the analyst day last August. The latest 2019 Street-high revenue estimate of $315.9 million represents growth of 36%.
Pluralsight shares have been volatile since the company went public in May 2018 at $15, with an opening trade of $20. The stock in September ran up to a post-IPO high of $38.37, then sold off sharply, hitting a new post-IPO low of $17.88 in November. At the early March 2019 high of $34.47, the shares had rebounded 92%.
At recent prices, the enterprise value/forward revenue multiple (using the 2019 consensus estimate of $311.8 million) stands at 13.1.
Credit: Google News