Wow, the best write-up in a long time - Thanks so much! One question though: Did they lay out reasons for not selling the yellow pages business? It would allow management to focus entirely on their software business and would likely close a lot of the valuation gap. It also seems like a strategic/financial buyer could grow total cashflows, since they would'nt be focused on winding it down asap. One would think that it would be worth selling this business, even with a discount of the estimated cashlfows of 250-300m to just get rid of it and become a pure play.
The main reason is that they're using their SMB customers in the Yellow Pages to get them into their SaaS offering. It's a much cheaper way to gain customers.
It's unlikely they would gain much from the sale of the YP business; it's better to simply own it and attract customers. Yellow Pages in Canada trades at 3x EBITDA and 3.5x annual FCF. You would still have debt and be restricted by covenants that require quarterly payments.
Great write up! I looked into this as well and had a couple things derail me, curious what your thoughts are on the below:
- Lot of EBITDA adjustments and SBC, struggled to get comfortable with the debt / true cash flow profile
- Customer value proposition - seems that their product is great for an older small business owner who pays instead of sitting down for a few hours with a Claude subscription and having it churn out an improved website etc. If I ran a small business I’m not convinced I would use their service
- Ultra specific Q/Q guidance, what’s the reason for that? Makes it easy to disappoint
Excellent writeup
Thank you!
Thanks for the write up!
Awesome. Another one for the bag
Wow, the best write-up in a long time - Thanks so much! One question though: Did they lay out reasons for not selling the yellow pages business? It would allow management to focus entirely on their software business and would likely close a lot of the valuation gap. It also seems like a strategic/financial buyer could grow total cashflows, since they would'nt be focused on winding it down asap. One would think that it would be worth selling this business, even with a discount of the estimated cashlfows of 250-300m to just get rid of it and become a pure play.
For two reasons:
The main reason is that they're using their SMB customers in the Yellow Pages to get them into their SaaS offering. It's a much cheaper way to gain customers.
It's unlikely they would gain much from the sale of the YP business; it's better to simply own it and attract customers. Yellow Pages in Canada trades at 3x EBITDA and 3.5x annual FCF. You would still have debt and be restricted by covenants that require quarterly payments.
Many thanks for the write-up. You're not deterred by the poor/mixed reviews of the software online (e.g. trustpilot and reddit)?
this is what kept me away. seems like a very poor product, lots of customers complaining that they are trapped in contracts.
Interesting pre keap they had such little engineering staff… why did they have to buy keap?
And also check their definition of retention (seasoned retention)…. Their software is fishy
Great write up! I looked into this as well and had a couple things derail me, curious what your thoughts are on the below:
- Lot of EBITDA adjustments and SBC, struggled to get comfortable with the debt / true cash flow profile
- Customer value proposition - seems that their product is great for an older small business owner who pays instead of sitting down for a few hours with a Claude subscription and having it churn out an improved website etc. If I ran a small business I’m not convinced I would use their service
- Ultra specific Q/Q guidance, what’s the reason for that? Makes it easy to disappoint