Instructure's Financial Report The Sales Machinery Is Only Geting Started

If you’ve never attended the earning calls of a company listed on the stock market, the experience could feel stultifying, or outrageous. Or both. Platitutes are exchanged suspiciously often. Responses are given in circles through carefully chosen buzzwords, so as not to upset the markets who react instantly. If a celebrity faux-pas meets Twitter outcry, the wrong adjective can sink down the benefits of actual bottom-line results for the quarter and set off all kinds of overcautious measures. Layoffs are always on the table. Analysts tasked with probing the leadership of a company in order to get an accurate picture for the investors they represent, end up dancing the tune and getting pleased with little sustenance. CEOs get away with statements such as “We have six defined growth initiatives that will broaden our product offerings and meaningfully expand our Total Addressable Market,” then sharing only a few details about three of them.

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Then you see the market rewarding the choreography.

Instructure, a learning solutions company, developer and vendor of the Canvas LMS, held its latest quarterly call last month. Digging deep into the woods, some light emerges about their views on the learning market, with the odd lesson for the Open LMS space. A round of questions from analysts followed scripted interventions by CEO Josh Coates and Chief Financial Officer Steve Kaminsky.

New Canvas Customer and Switched Moodle Tracker

Canvas took the US LMS market in stride, and by dethroning Blackboard it transformed it for good. Today, the morph seems all but exhausted. As the LMS penetration in US Higher Ed reaches 100%, the new target is bringing those from self-managed purgatory into the elysian cloud.

Moodle’s history is a double-edged sword. Canvas has no qualms in exploiting the “free as in puppy” narrative, claiming that it is possible to switch to Canvas purely on financial grounds. Not everyone will agree with said assessment. In any case, if the cloud becomes imperative, it will be next to impossible to drag many self-manage Moodle organizations away from the flexibility and control only Open Source can offer, and which Moodle is in the best place to deliver. For Partners and other providers of cloud-based Moodle solutions, it is a leg up to retain the ground. Not to say there is no challenge in it.

The call remained vague about Canvas future avenues for growth, except perhaps in Latin America and Australia. The leaders focused on high-profile customers rather than market share. They include Mexico’s Tecnológico de Monterrey and Australia’s four largest universities. Coates considers them “anchor customers,” who will help spread the message across campuses on each country. Multinational corporations, such as Lululemon or Deloitte (Spain offices), could be the basis of similar strategies, cross-country, internally.

In the US, new customers include UC San Diego (who had switched from Blackboard to Moodle), Wilmington University and Vermont State. The years of double-digit growth are over.

To fight Moodle, “Value Engineering”

Part of the reason why sales and marketing expenses grew larger than R&D (24.2 versus 22%) is the onboarding of high-level names to the senior leadership. Most notable is the new Chief Marketing Officer Marta DeBellis. More hiring in the sales department is tied with a portfolio expansion, as “higher-caliber sales have more stuff on the truck to sell.” The investment in marketing executives is heftier than it looks, as the company implemented stock option compensation, which will not figure on last year’s balance sheet.

Asked to why the marketing grows higher than the R&D, Goldsmith argued for their “value engineering” initiatives, which will become more clear on the coming year. It is a process where the technology is built in clear alignment with the customer needs. It gives them comfort to note the “stagnation” of Moodle. (Despite Moodle’s increasing number of new features.)

A new technology mentioned in the call, Dig, is the most noteworthy innovation. They do not share much details. It focuses on “analytics, data science and artificial intelligence.” They acknowledge the platform is possible only after they have reached a certain market share, which could imply it is based on user data.

To close, Canvas seems about to push for more intensive upselling plays. As the LMS market slows down, the new line of products are designed to get traction from Canvas existing customer base. Two keys to Canvas success in the US Higher Ed are not present anywhere else: Misleading ideas about Moodle (and some level of disregard for Open Source technologies) and the high disposable income at the top of the food chain, partly due to the rising tuitions. Kaminsky admits as much:

«When we think about things like Dig and the impact it could have on student retention, and knowing that the success rate of an entering freshman is about 50% to get to a graduation level, to finish with a bachelor’s degree, and you think average tuitions are 40, 50 grand a year, when you start adding that up, what’s the impact to a school to get the 50% to 55%?»

Moodle is mentioned some 9 times throughout the call. On the first one, Coates call the LMS a “freebie.”

After the results, Instructure’s stock rose to a historical height, crossing the $1.5 billion USD value mark.

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