On Its Way: Initial Thoughts On TELUS And Qualtrics

Summary

• A contrast of two stocks serving the Customer Experience market.
• TELUS is an IT Services firm. Qualtrics is a SaaS firm.
• Simon and I have had much debate about the investment prospects for both, so we've decided to present both in one Initial Thoughts that will be published soon.

Brief Preface

TELUS

I (Jordan) see considerable upside in TELUS (TIXT) that has emanated from a top-down view. From our research we're learning that there is a skills shortage in IT which will drive increased demand for external services. Given the tough time that IT service firms have had during the pandemic, this increase in demand has a good chance in helping stock prices recover. 

The pandemic has thrusted greater attention onto Customer Experience, or CX. For the first time in their lives many people were forced to shop, bank, seek medical advice, etc., online during the pandemic, and now this shift in behaviour will be permanently part of how they make purchasing decisions and how they want to consume services. This makes CX even more important than before COVID-19. 

TIXT are predominantly an IT services company serving the Customer Experience, or CX, market. They deliver an end-to-end solution for clients aiming to improve their CX - from designing apps and websites, building and deploying them, and then managing them for their clients. This vertically-integrated offering enables them to target more complex needs and ultimately leads to higher ACV. Given some seemingly competitive advantages, I think the stock has a good chance to do well, at least in the short-to-intermediate term. 

Pros - it's early in our research but it seems as though there are fewer direct head-to-head competitors compared to Qualtrics. 

Cons - IT service companies don't scale as well as SaaS which curbs growth sooner and puts a lower ceiling on margins. The resulting higher customer concentration adds risk to the predictability of revenue growth.

Qualtrics

Qualtrics (XM) is a SaaS company targeting the CX and employee experience markets. They have a market-leading piece of software that empowers clients to continually collate feedback and then improve the CX accordingly. As inherent with SaaS vendors, XM has great potential scalability. Due to the self-serve nature of XM's software, they are seeing demand predominantly from the SMB segment of the market.  

Pros - the polar opposite to TIXT. Potentially great scalability and operating leverage leading to higher margins. Also this results in more customers and more predictable revenue growth trajectory. 

Cons - at first glance it looks like XM has more direct ahead-to-ahead competitors than TIXT. Overlap with neighbouring SaaS spaces and low entry barriers may pose growth risks. 

Anyway, we hope to have this full Initial Thoughts published exclusively for ATI members very soon.