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Forget Facedrive (TSXV:FD): This Tiny Tech Stock Has Far More Upside

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Facedrive (TSXV:FD) has been one of the hottest TSX tech stocks of 2020. Up 517% year to date as of this writing, it has been a massive winner. The company’s meteoric rise has been backed by equally strong revenue growth. In the first quarter of 2020, FD posted $388,000 in revenue — up from just $36,000 a year before. That’s a growth rate of more than 1,000%! While FD stock trades at sky-high multiples, its sales growth has been like something from another world.

But a reality check is in order. A big part of why FD was able to grow its revenue so much was because it was so tiny last year. $36,000 is less than an average Canadian family’s income. Of course, a startup with $3.4 million in cash on hand can grow dramatically starting from such a small base. In the meantime, Facedrive faces stiff competition from established ride-sharing companies like Uber and Lyft. To expect the company’s growth to continue as it has so far would be naive.

That’s not to say there aren’t real opportunities in Canada’s small-cap tech scene. There are actually many small-cap tech stocks that have done well this year. Some of them have managed to do so without soaring miles ahead of their true value. In this article, I’ll explore one such stock that could have tonnes of upside.

Docebo

Docebo (TSX:DCBO) is an e-learning company that provides software for organizations to create training modules. It aims to have its platforms be used by corporations to create self-directed learning modules for their employees.

At a time when social distancing is paramount, it seems like a winning idea. In-person training is less viable in a world of mass working from home. So, companies could benefit from online training. Docebo, with its ready-to-go training platform, could benefit from the transition to online learning.

Why it’s better than Facedrive

A key advantage Docebo has over Facedrive is a more stable business model. Docebo’s business is based on long-term enterprise contracts. Companies pay monthly fees to use DCBO’s learning platform. This is in contrast to Facedrive, which is based on one-off gigs. A sudden increase in marketing spending by Uber could easily put a dent in Facedrive’s business.

The same would have less of an effect on Docebo customers. Imagine having spent months creating online training modules and weeks getting Docebo set up at your office. After all that investment, you’d be reticent to switch to another platform. By contrast, Facedrive customers have countless instant options at their fingertips.

Foolish takeaway

Facedrive has been the breakaway TSX tech success of 2020. Up 500% this year, it has outperformed the market by leaps and bounds. However, it’s a tiny upstart in a very competitive industry. The more it scales, the harder it will be for it to effectively compete with Uber and Lyft.

Docebo, by contrast, has already locked down huge enterprise contracts with the likes of HP and Wal-Mart, and has a profitable quarter under its belt. Between the two, DCBO looks like the better value today.

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Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Uber Technologies.

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