On Friday, Truist Securities maintained a Buy rating on Instructure, Inc. (NYSE:INST) stock, with a price target of $35.00. The firm highlighted recent reports that private equity firms Francisco Partners and KKR are considering acquiring the education technology company. These firms are reportedly in the final stages of bidding, with the possibility of submitting binding offers soon.
Instructure, known for its educational software serving higher education and K-12 institutions, is currently valued at approximately 6.3 times its expected 2025 revenue. This valuation comes in the wake of a similar acquisition in the sector, where Bain Capital agreed to purchase PowerSchool Holdings for $5.6 billion, or roughly 6.4 times its forecasted 2025 revenue.
The company, which went public in July 2021 with an IPO priced at $21 per share, has been the subject of sale speculation in the past. In early 2020, Instructure was taken private by Thoma Bravo for an estimated $2 billion in equity value.
During the strategic transaction process, over 40 different parties reportedly showed interest in Instructure, indicating the company's strong market position and the high level of engagement from both financial sponsors and strategic partners.
The current market situation for Instructure reflects its perceived franchise value, as evidenced by the extensive interest during the previous acquisition by Thoma Bravo. The company's strong leadership position in the education sector and its consistent trade at a multiple of future revenues highlight its ongoing appeal to potential buyers.
Truist Securities' reiterated rating and price target come as the market anticipates the next steps in the potential acquisition of Instructure, with other buyers possibly entering the fray or the company choosing to remain private. The outcome of these developments is expected to become clearer with the submission of final bids in the near future.
In other recent news, Instructure reported a strong first quarter, with revenues increasing by 20.7% year-over-year to $155.5 million. The company's subscription and support revenue, accounting for 93% of total revenue, also saw a significant 22.1% rise.
Adjusted EBITDA grew by 34.6% to reach $64.9 million. Following these results, Instructure has raised its fiscal year 2024 revenue outlook to a range of $656.5 million to $666.5 million.
The company's CEO, Steve Daly, has reiterated Instructure's goal of becoming a $1 billion revenue company by 2028, with plans to expand its platform offerings and secure new customers.
Despite experiencing elongated sales cycles in the higher education sector, the company exceeded all quarterly guided metrics and reported a robust non-GAAP gross profit margin of 79%.
The recent acquisition of Parchment is performing well and contributing to positive traction. As it heads into its prime selling season, Instructure remains committed to delivering value to its shareholders.
InvestingPro Insights
As Instructure, Inc. (NYSE:INST) garners attention with potential acquisition talks, current financial metrics and analyst sentiment provide additional context to its market position. The company, with a market capitalization of $3.63 billion, has been navigating through challenging financial waters with a negative P/E ratio of -78.73 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at -196.76, reflecting the market's anticipation of future growth rather than current earnings. Despite this, revenue growth remains positive, with a 13.5% increase over the last twelve months as of Q1 2024, and a more robust quarterly growth rate of 20.65% for Q1 2024.
InvestingPro Tips indicate that analysts are optimistic about Instructure's earnings potential, with 10 analysts recently revising their earnings estimates upwards for the upcoming period. This aligns with the sentiment that net income is expected to grow this year. Moreover, while the company is currently not paying dividends and has been non-profitable over the last twelve months, analysts predict profitability within this fiscal year. However, it's important to note that short-term obligations exceed liquid assets, which could be a point of consideration for potential investors or acquiring entities.
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