2. Thryv Holdings (NASDAQ:THRY)
Short % of Float: 6.9
No. of Hedge Funds as of Q2 2024: 18
Thryv Holdings (NASDAQ:THRY) is a marketing services and software company that serves small to medium-sized businesses (SMBs). It services more than 350,000 SMBs through four segments: Thryv US Marketing Services, Thryv US SaaS, Thryv International Marketing Services, and Thryv International SaaS.
The Thryv US Marketing Services segment encompasses its US digital and print solutions business. In contrast, the Thryv International Marketing Services segment includes its digital and print solutions business outside the US. More than 65,000 businesses use the company’s software as a service (SaaS) platform to manage their end-to-end operations. Its solutions allow SMB clients to execute daily operations, manage customer relationships, and generate new business leads. Its US SaaS segment covers its SaaS flagship all-in-one small business management platform in the US, while the International SaaS segment manages the same outside the country.
SaaS revenue in Q2 2024 increased by 25% year over year to $77.8 million, standing within the company’s guidance range. SaaS EBITDA significantly outperformed, experiencing a 60% year-over-year growth to $10 million, the highest point it has reached as a public company. The company also delivered strong subscriber growth, growing by 52% with 85,000 clients. It is also successfully upgrading its marketing services clients to its SaaS platform, highlighting the robust profitability model the company is running on.
Thryv (NASDAQ:THRY) also streamlined its sales process to incentivize and prioritize high-margin product sales while undertaking initiatives to boost spending from its existing customer base. As a result, SaaS subscribers grew to 85,000 in Q2 from 70,000 in Q1 fiscal 2024. This 21% sequential increase was achieved by continuously migrating marketing services clients to the SaaS platform.
A key factor driving the company’s success in this strategic transition is its recently launched marketing center. The center empowers businesses by managing their advertising campaigns, augmenting their online presence, and making insightful decisions backed by data. This product has proved highly effective in elevating the company’s market standing, positioning its clients for success in a digital-first world.
Its center strategy is continuing to take ground, as more than 10% of its current clients have two or more paid centers. This translates to a sequential growth of 200 basis points and a growth of 800 basis points from the same time last year. These trends show that more clients are benefitting from the company’s marketing center and experiencing tangible results in their business growth. The stock’s current price target of $18.84 implies an upside of 51.27%. It ranks second on our list of the worst marketing stocks to buy.
Laughing Water Capital stated the following regarding Thryv Holdings, Inc. (NASDAQ:THRY) in its Q2 2024 investor letter:
“Thryv Holdings, Inc. (NASDAQ:THRY) – Thryv, our growing SMB software business that is milking its declining Marketing Services business for cash flow, grew SAAS customers 30% YoY, increased full-year guidance, announced that seasoned net dollar retention improved by 300 bps, refinanced their debt on better terms, and initiated a share repurchase program during the quarter. These are all undeniably positive developments, but on the negative side of the ledger, the decline of their Marketing Services business has accelerated a touch, and shares have sold off sharply.
Last quarter, under separate cover I included a longer writeup on THRY where I explained what I think is happening under the surface at THRY with the Marketing Services business and the new Marketing Center SAAS product, and how I believe the economics of Marketing Center will prove to be wildly superior to the economics of the Marketing Services business. Thus far the market not only does not care, but in fact seems to be punishing THRY for what I believe will be a positive evolution of their business.
Management has indicated that revenue from the SAAS business will eclipse revenue from the Marketing Services business around this time next year, at which point THRY should start to trade more like the software business it is than the marketing business it was. Unsurprisingly, insiders at THRY once again bought shares in the quarter.”
