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Instructure, Inc.: Initiation of Research Coverage

Thursday, October 26, 2017

William Blair & Company initiated research coverage of Instructure, Inc. (INST $34.85). Instructure is a cloud-based learning management platform for academic institutions and corporations worldwide.

Analyst Justin Furby estimated the company would generate revenue of $153.5 million in 2017 and $195.2 million in 2018.

“Instructure’s flagship Canvas application is rapidly taking share, with win rates as high as 70%,” Furby said. “Canvas is a leading learning management system, or LMS, in the higher-education and K-12 markets and is used by more than 2,000 educational institutions to help facilitate and enhance face-to-face and online learning experiences. Furthermore, the solution has propelled the company to more than $150 million in revenue this year, and we conservatively peg the education market opportunity at roughly $1.2 billion. In early 2014, Instructure began developing Bridge Learn, an LMS to address the commercial market. We estimate this business represents 5% or less of revenue but is a focus area for management—we estimate one-third of development expense. Instructure also recently launched a performance management solution and aims to expand into the broader talent management market. We peg Instructure’s corporate opportunity at nearly $2 billion.”

Furby concluded, “Instructure’s growth rates put it in the upper tier of SaaS vendors, but the trajectory has slowed, with subscription revenue growth of 39% expected in 2017, compared with 55% in 2016 and 64% in 2015. This slowdown has been driven by penetration into the education market, and adoption of its corporate learning solution will likely need to increase to sustain medium-term growth of 30%-plus.”

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Current Ratings Distribution (as of 10/26/17)

Coverage Universe
Outperform (Buy): 64%
Market Perform (Hold): 34%
Underperform (Sell): 1% 

Inv. Banking Relationships*
Outperform (Buy): 20%
Market Perform (Hold): 10%
Underperform (Sell): 0%

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