Procore Technologies (PCOR -1.70%), a provider of construction-management software, just wrapped up its 2021 fiscal year and reported strong results across the board. Yet despite exceeding its own guidance for three consecutive quarters, Procore stock is trading below its May 2021 IPO price and down over 40% from its all-time high.
With a current market cap of about $8.5 billion, let's see whether or not this software-as-a-service company can capitalize on its massive market opportunity.
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Digitizing construction
Construction is one of the largest industries in the world. It accounts for roughly 7% of the global workforce, and according to consulting company McKinsey, overall global construction spending is expected to reach $14 trillion by 2025. But despite its size, construction is estimated to be the second least-digitized industry in the world, behind only agriculture. Procore is helping to change that.
It's a leading provider of cloud-based software to the industry. So whether it's an owner, 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 span the entire life of a project, from pre-construction all the way to signing the closing papers.
And its platform is constantly evolving. During the company's most recent quarter, Procore acquired a company called Levelset for $500 million. While Levelset's value proposition is fairly difficult to explain in a concise manner, the company ultimately helps make sure its construction customers get paid on time and avoid any cash crunches. By integrating Levelset into its suite of products, Procore is adding yet another weapon in its arsenal to attract new customers and retain existing ones.
With its wide array of software, the company is helping all of its customers migrate their workflows and records away from whiteboards and file folders into a ubiquitous and collaborative digital location.
2021 at a glance
With its first three quarters as a public company now complete, investors should have a taste for 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 grow its revenue. Existing customers are also spending more with the company as the number of clients contributing more than $100,000 in recurring revenue increased 32% year over year. All together, Procore was able to cross $500 million in total revenue for 2021.
However, despite the strong headline numbers, Procore did experience some headwinds throughout the year. Many construction companies are facing a labor shortage and increased costs for materials, and both of these issues are hindering companies' willingness to adopt new technology at the moment.
But CEO Tooey Courtemanche thinks these short-term problems could potentially be tailwinds in the long run. When discussing the current labor shortage on the quarterly earnings call, he expressed his optimism: "[T]he labor shortage, exacerbated by an uptick in early retirements, has prompted an increased reliance on younger members of the workforce. And this future generation of builders have expectations of using consumer-grade and mobile-centric technology like Procore in their work."
As labor shortages and costlier materials continue to increase the need for efficiency, the adoption of digital solutions like Procore should pick up.
The big picture
For investors looking at Procore stock, the valuation can seem quite expensive at first glance. Its price-to-sales ratio currently sits at about 14, well above the market average. But this premium multiple also demonstrates just how optimistic investors are about the company's future, and deservedly so.
The shift to digital solutions in the massive construction industry is well underway. Yet many builders are slow adopters, and Procore estimates its current market share of U.S. general contractors at just 25%. But the majority of the remaining 75% aren't choosing competitors' offerings -- they're just relying on their legacy solutions.
As these late adopters struggle to keep up, the benefits of digital solutions should become increasingly evident. This massive opportunity spells a long runway of potential customers and enduring revenue growth for Procore.
