Last month, Docebo (TSX:DCBO) reported impressive second-quarter earnings and raised its 2024 guidance, improving investors’ confidence and leading to a healthy buying in the stock. The company’s stock price has increased by 15.4% since reporting its second-quarter earnings on August 8. However, DCBO still trades at around a 24% discount compared to its 52-week high. Amid this backdrop, let’s assess whether Docebo would be a buy at these levels by looking at its second-quarter earnings and growth prospects.
Docebo’s second-quarter earnings
For the second quarter, which ended on June 30, Docebo reported revenue of $53.05 million, representing a 22% increase from the previous year. The addition of 307 customers and the expansion of its average contract value by 9.7% drove its topline. It earned around 94% of its revenue from subscriptions.
Amid the topline growth, the cloud-based learning platform provider’s gross profits grew by 22% while its gross profit margin remained at 80.7%. Its net profits of $4.7 million during the quarter represent a substantial improvement from a loss of $5.7 million in the prior year’s quarter. However, removing one-time items, its adjusted net income stood at $7.9 million, representing 68% year-over-year growth. Further, the company closed the quarter with a recurring revenue of $205.9 million, a 19% increase from the previous year.
Docebo’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) increased by 158% to $8 million, while its adjusted EBITDA margin expanded from 7% to 15%. It also generated $6.8 million of cash from its operating activities. Meanwhile, its free cash flows stood at $8.4 million, representing 15.9% of its total revenue. Now, let’s look at its growth prospects.
Docebo’s growth prospects
Amid the growing adoption of digital learning solutions, rising speed of telecommunication services, and new product launches, the learning management solution (LMS) market is expanding. Meanwhile, Grand View Research projects the global LMS market to grow at an annualized rate of 19.5% from 2023 to 2030. The expanding addressable markets could benefit Docebo, which continues to invest in developing artificial intelligence-powered features to enhance customer experiences.
Further, the company has adopted several growth initiatives to expand its business in enterprise, OEMs (original equipment manufacturer), and government segments. Besides, its growing customer base and increasing average contract value could support its growth. Also, around 81% of its customers have chosen multi-year agreements, thus providing stability to its financials. Considering all these factors, I believe the company’s long-term growth prospects look healthy.
After reporting better-than-expected second-quarter performance, Docebo’s management raised its guidance for this year. The company’s management expects its topline to grow by 18-19%. Meanwhile, its adjusted EBITDA could come between 15-15.5%, an improvement from 9% in 2023.
Investors’ takeaway
Amid the recent buying, Docebo’s valuation has increased. It trades at 5.6 and 37.4 times analysts’ projected sales and earnings for the next four quarters. Although its valuation looks expensive, it is justified given its healthy growth prospects and improving profitability. So, investors with over three years of investment horizon can start accumulating the stock to earn superior returns.
