Procore Technologies ( PCOR 0.88% ), a construction management software provider, just completed its 2021 fiscal year and reported strong results across the board. Yet despite beating its own forecast for three straight quarters, Procore stock is trading below its May 2021 IPO price and down more than 40% from its all-time high.
With a current market capitalization of around $8.5 billion, let’s see whether or not this software-as-a-service company can capitalize on its huge market opportunity.
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Digitize construction
Construction is one of the largest industries in the world. It accounts for around 7% of the global workforce and, according to consultancy firm McKinsey, overall construction spending worldwide is expected to reach $14 trillion by 2025. But despite its size, it is estimated that construction is the second least digitized industry in the world. , behind only agriculture. Procore helps change that.
It is one of the leading cloud-based software providers for the industry. So whether it’s a homeowner, general contractor, specialty contractor, or even an architect, Procore helps everyone in the construction process – from the office to the job site – stay connected. on a single digital platform. The company also offers products that cover the entire life of a project, from pre-construction to the signing of closing documents.
And its platform is constantly evolving. During the company’s most recent quarter, Procore acquired a company called Levelset for $500 million. Although Levelset’s value proposition is quite difficult to explain concisely, the company ultimately helps to ensure that its construction clients are paid on time and avoid any cash flow crisis. By integrating Levelset into its product suite, Procore adds another weapon to its arsenal to attract new customers and retain existing customers.
With its wide range of software, the company helps all of its customers migrate their workflows and records from whiteboards and folders to a ubiquitous, collaborative digital location.
2021 in brief
With its first three quarters as a public company now complete, investors should get a taste of what to expect.
Throughout 2021, Procore added just over 2,000 new customers for a total customer count of 12,193, a 20% increase over the prior year. But the company isn’t just relying on adding new logos to boost its revenue. Existing customers are also spending more with the company, as the number of customers contributing more than $100,000 in recurring revenue increased 32% year over year. In total, Procore was able to exceed $500 million in total revenue for 2021.
However, despite the headlines, Procore has seen headwinds throughout the year. Many construction companies are facing labor shortages and rising material costs, and both of these issues are currently hampering companies’ willingness to adopt new technologies.
But CEO Tooey Courtemanche thinks these short-term issues could potentially be long-term tailwinds. When discussing the current labor shortage on the quarterly earnings call, he expressed his optimism: “[T]he labor shortage, exacerbated by an increase in early retirement, has led to increased reliance on younger members of the labor force. And this future generation of builders expects to use consumer-grade, mobile-centric technology like Procore in their work.”
As labor shortages and more expensive materials continue to increase the need for efficiency, the adoption of digital solutions like Procore is expected to accelerate.
The big picture
For investors looking at Procore shares, the valuation may seem quite expensive at first glance. Its price-to-sales ratio currently sits at around 14, well above the market average. But this premium multiple also demonstrates how optimistic investors are about the company’s future, and rightly so.
The shift to digital solutions in the massive construction industry is well underway. Yet many builders are slow to adopt, and Procore estimates its current U.S. general contractor market share at just 25%. But the majority of the remaining 75% don’t choose competitors’ offerings, they simply rely on their legacy solutions.
As these late adopters struggle to keep up, the benefits of digital solutions are expected to become increasingly evident. This massive opportunity means a long lead of potential customers and sustainable revenue growth for Procore.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.
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