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Cornerstone OnDemand: Improved Growth Outlook Makes The Stock Attractive

Kayode Omotosho profile picture
Kayode Omotosho
5.93K Followers

Summary

  • Prior to the acquisition of Saba, CSOD was valued like an average HCM player.
  • Improved growth, cost synergies, and other sales productivity initiatives are set to drive margin growth and cash flows in the coming quarters.
  • CSOD's leverage will also improve given its focus on reducing the debt burden on its balance sheet.
  • The Street is expected to digest the improved picture at a slow rate, given execution worries.
  • The market opportunity is sufficient to justify a positive outlook.

Consolidation in Cloud HR continues - Cornerstone OnDemand to acquire Saba

Source: Diginomica

Cornerstone OnDemand (CSOD) has added new capabilities to improve its growth factor. The improved growth factor will assist earnings and cash flows while reducing its debt burden. CSOD is expected to enjoy the tailwinds from the growing cloud HCM space. Baring execution challenges, we expect CSOD's momentum to improve as it meets its financial target of $1b+ in yearly revenue/ARR and uFCF margin of 30%+.

Saba Acquisition + Revamped Sales Strategy To Propel Growth

CSOD provides SaaS-based HCM solutions. Like most HCM players, CSOD provides multiple HCM modules to diversify and differentiate its platform. CSOD's differentiating factors are mostly concentrated in its learning management and talent management modules. In recent quarters, CSOD has made moves to improve its growth factor despite the impact of the pandemic on HCM players.

Cornerstone OnDemand, Inc., together with its subsidiaries, provides learning and people development solutions through a software-as-a-service model worldwide. Its enterprise people development solution comprises four product suites, such as Recruiting Suite that helps organizations to attract, hire, and onboard the right employees; Learning Suite, which provides robust, a modern learning management software to supports compliance, knowledge sharing, and employee-driven development training; Performance Suite that provides tools to manage goal setting, performance reviews, competency assessments, development plans, continuous feedback, compensation management, and succession planning; and HR Suite, which provides an aggregated view of all employee data with workforce planning, self-service management, and compliance reporting capabilities.

As we can see in the table below, growth has accelerated from low-single-digit to the double-digit range. The improved growth momentum has benefitted from the recent acquisition of Saba. Saba was acquired for approx $1.3B. The acquisition of Saba will accelerate CSOD's market expansion initiatives. It will also validate CSOD's rationale to play in the competitive HCM space.

Source: Seeking Alpha

Given the market's warm

This article was written by

Kayode Omotosho profile picture
5.93K Followers
Kayode's strategy aligns only with businesses that have competitive moats, solid financials, good management, and minimal exposure to macro headwinds.-------------------------------------Coverage tilted towards tech stocks (IoT, Cybersecurity, Cloud, DevOps, Data management)

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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