Instructure Holdings Poised To Dominate Learning Management System Market: KeyBanc

KeyBanc Capital Markets analyst Devin Au initiated coverage on Instructure Holdings, Inc. INST, with an Overweight rating and a price target of $32.

Au sees "interesting" growth opportunities in international and cross-sells, positioning the company as the vertical leader in the education learning management system, LMS, market.

With ~40% market share in higher ed and ~30% share in K12, Instructure is the LMS market leader in the U.S., the analyst adds.

Given that 40% of U.S. K12 are still using free Learning management system tools, and 70% of international higher educators are utilizing legacy on-prem solutions, there remain vast greenfield opportunities for Instructure to gain shares in the near and long term, notes the analyst.

The analyst notes that Instructure has expanded its product offering to >10 (from solely LMS historically) and has strengthened its cross-sell motion.

The company is also expected to gain from the government funding passed during the pandemic to support education initiatives, which is expected to expire in September 2024, providing INST with near-term adoption catalysts. 

The analyst expects Instructure to expand the EBITDA margin towards 40%, with leverage primarily from improving cost structure and optimizing the on-/off-shore employee mix.

Given the above, the analyst expects FY23 revenues of $524.6 million, while FY24 revenues are expected to be $577.3 million.

Price Action: INST shares are trading higher by 2.4% to $25.63 on the last check Thursday.