The artificial intelligence (AI) megatrend is here to stay and this sector is forecast to surpass US$1 trillion through 2030. Given this rapidly expanding addressable market, it makes sense to invest in stocks that are part of this segment and benefit from exponential gains over time.
Canadian investors can hold a portfolio of AI stocks in a TFSA (Tax-Free Savings Account) and generate market-beating gains in the upcoming decade. The TFSA contribution room in 2024 has increased to $7,000, and it makes sense to allocate a portion of this contribution towards AI stocks such as Docebo (TSX: DCBO). Let’s see why.
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An overview of Docebo
Founded in 2005, Docebo stock went public in late 2019 and has since returned 215% to shareholders. Valued at a market cap of $1.5 billion, Docebo stock also trades 57% below all-time highs, allowing you to buy the dip.
Docebo provides corporate e-learning solutions, a vertical that has seen strong demand in recent years. Several companies have recognized the positive impact of these solutions, and the work-from-home trend has made e-learning modules a core part of corporate strategies.
Docebo initially launched as an open-source model that was installed on customer servers directly. Around a decade back, it transitioned towards a cloud-based SaaS (software-as-a-service) model, allowing it to generate cash flows across business cycles.
Docebo was among the first companies to introduce AI tech in the e-learning market. Its AI-powered products should help transform e-learning globally and provide Docebo with a competitive moat.
Docebo is a growth stock
Between 2020 and 2023, Docebo increased its subscription sales by 42% annually. Docebo’s subscription sales currently account for 93% of total revenue. It ended the first quarter (Q1) with 3,833 customers and an annual recurring revenue (ARR) of US$201 million. Some of its clients include companies such as Lululemon, Chipotle Mexican Grill, Netflix, General Electric, Zoom, and Amazon Web Services.
A growing base of enterprise customers allows Docebo to expand into new use cases and replace legacy systems providers. As 65% of Docebo’s ARR is tied to external or hybrid use cases, the company sees a massive opportunity to win new enterprise business in each of the geographies it serves. Around 81% of the ARR it added in 2023 was represented by customers who chose multi-year contracts.
In addition to a widening customer base, Docebo has successfully increased customer spending on its platform. Its average contract value rose from US$12,000 in 2017 to over US$52,000 in Q1 of 2024. Moreover, Docebo’s net retention rate stood at 104%, which suggests existing customers increased spending by 4% in the last 12 months.
Docebo is a profitable stock
Unlike several other growth stocks, Docebo is now reporting consistent profits. Due to its asset-light model, it is positioned to benefit from operating leverage and grow profits faster than sales.
Docebo reported an adjusted earnings before interest, tax, depreciation, and amortization margin of 14.5% in Q1, up from 5.3% in the year-ago period. It also reported a free cash flow margin of 17.9% in the March quarter.
Analysts tracking Docebo stock expect adjusted earnings to expand from US$0.08 per share in 2023 to US$0.73 per share in 2024 and US$1.12 per share in 2025. Priced at 33 times forward earnings, DCBO stock is not too expensive, given its stellar growth rates. Analysts remain bullish and expect shares to surge over 50% in the next 12 months.
