Instructure’s Current Market Position

With the proliferation of so many privately funded educational technology companies, the quarterly earnings call of a publicly traded company like Instructure is a rare opportunity to get a detailed look at company performance and hear directly from executive leadership as they respond to analysts’ questions. Sometimes those responses can be guarded, at other times very frank. Regardless of which, it’s almost always very revealing.

During Monday’s third quarter earnings conference call with Instructure we saw the company showing considerable confidence in their current market position and trajectory for the next couple of years. Quarterly revenues of $30.1M are up 44% over Q3 last year. Of that $25.8M (86%) is recurring revenue from subscriptions, the remaining $4.3 is derived from professional services.  In the domestic higher education market, CFO Steve Kaminsky cited research from e-Literate and MindWires that attributes a win rate of 77% to the Canvas LMS when it comes to new implementations and said that he expects that number to remain consistent over the next few years. With a current market share of 17-20% in the U.S. and Canadian higher education markets, Instructure said that they are expecting Canvas to gain another 10-30% of the market over the next 2-3 years. See Instructure’s full third quarter financial report here

One analyst on the call asked if there were any developments that would make Instructure reconsider their current position and trajectory in the market, namely is Blackboard Learn Ultra posing a threat. While Instructure gave a nuanced response, the short answer is no. In fact, they interpreted the push by Blackboard to upgrade their customers as a net positive for Canvas as this would present an opportunity for the institution to review all options on the table, including Canvas. No other specific threats were mentioned and the Instructure team didn’t specifically address any other direct competitors.

With their rapid growth, high win-rate in the North American higher education market and more efficient spending reflected in earnings per share improvements that beat Wall Street analysts’ estimates, Instructure is now projecting that they will be cash flow positive by the second half of 2017 and continue to be so in 2018. If this holds, it is a significant milestone and might quell some concerns about their, and other educational technology companies’, ability to move beyond operating losses and become profitable. When asked about this and the balancing act between high growth and profitability, CEO Josh Coates stated that while they want to remain in high growth territory, they would not push to do so at the expense of profitability.

There are limits to Canvas’ primary markets of higher education and even K-12 in North America, however, and we heard Instructure’s sanguine response confirm this view. The company will need to rely on growth in other markets, such as Bridge in corporate learning and Canvas outside of North America, to deliver the growth that investors demand longer term. To this end, Instructure said that the investments in Bridge, Arc and international Canvas sales are already starting to show promise. Early numbers on the Bridge uptake in corporate markets are reportedly comparable to Canvas’ growth numbers in the early days, and this in a fragmented market without a dominant player causing disaffection.

We also heard about some positive signs of growth in international markets. This is a market that e-Literate has been following closely and we expect to be publishing detailed reports on this segment in the near future.

Update (PH): The stock market clearly has different perspectives, as Instructure’s stock price has plunged today based on lower-than-expected revenue guidance. We should clarify that we view public releases as insight into company operations and financial health, and we do not comment or focus on stock prices, per se. But it is worth acknowledging the market reaction in this case.

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