If I told you that the owner of the Yellow Pages phonebook was going to be the next multi-billion dollar software-as-a-service (SaaS) business, I would forgive you for being skeptical. But after laying out a plan to hit $1 billion in SaaS revenue in 2027 and $4 billion by 2032 at its investor day this week, Thryv Holdings (THRY 3.35%) seems serious with its ambitions.
The company estimates its SaaS segment revenue will be $207 million for 2022, with total revenue for 2021 being just about $1 billion (including the marketing, Yellow Pages, and other ancillary businesses). So $1 billion in revenue just from its namesake SaaS platform, Thryv, would be an ambitious game-changer for the Dallas-based company with a $900 million market cap.
Yellow Pages isn't as bad as it sounds
While you may not know the name Thryv, you're most likely familiar with the Yellow Pages, the phone book dropped off at your doorstep that lists the numbers of local businesses in your area. This was basically the way to find a plumber or a local restaurant before Alphabet's Google came on the scene.
Before getting further into the more exciting growth part of the business, it's worth mentioning that the Yellow Pages business, while shrinking, isn't as bad as it may sound. While the product has become something of a "melting ice cube" with revenue decreasing over time thanks to the advent of Google, it is still in use and generating revenue at a decent margin. While the company does not break out the Yellow Pages specifically, within its marketing services segment, Thryv estimates it will generate $880 million of revenue this year with 59% of that from "print," at a 35% or more EBITDA margin. This is a decent margin and a nice pool of cash the company can use to bolster its SaaS-based segment.
What is Thryv?
But Thryv is much more than just the Yellow Pages. The company's namesake CRM platform has 46,000 customers and helps small businesses with all facets of their business, including marketing, customer relationship management, scheduling, and even payments. Thryv tailors its product to small and medium-sized businesses and contractors like plumbers, electricians, and HVAC companies. While contractors, in particular, can derive a lot of value from Thryv's services, its value proposition isn't limited to just the trades; hair salons and even medical offices (Thryv is HIPA compliant) count themselves among Thryv's customer base.
Thryv offers a lot of valuable tools to small businesses and is continually improving on its offering. For example, it offers a centralized inbox where a business operator can get all their messages in one place, whether they are emails, text messages, or messages via Facebook or Google. Thryv will soon be adding WhatsApp and Telegram to the service. In addition, Thryv integrates with many popular tools and apps that small business owners use on a daily basis, such as Stripe, Shopify, Intuit's QuickBooks, and PayPal.
Thryv has also added payments to its value proposition for users with ThryvPay, and it is growing at an impressive rate. Payment volume was a paltry $7 million annualized in Q4 2020 and increased all the way to $101 million annualized in the first quarter of 2022. The company is targeting $3 billion in payment volume annualized by the end of 2027.
Go where they aren't
Thryv knows what kind of customers it wants and is laser-focused on this base. The company says that its ideal customers are established, service-based businesses with around $500,000 in revenue or more and 2-50 employees. Thryv estimates that there are about 31 million small businesses in the U.S., but it is focused on working with the 4 million that it feels like it's the best fit for. Think of a painting business that has grown over the last few years and has evolved from the owner-operator to a crew of painters and vans to keep track of. Thryv CEO Joe Walsh has said that the 2010s were the decade of enterprise SaaS and that this decade will be the "decade of mom and pop and small businesses running their business on mobile devices."
What I like about this strategy is that in addition to the laser focus, Thryv is targeting a market that is smaller than that targeted by the bigger, more established CRMs like Salesforce and HubSpot, so it's serving a niche that is underserved by the larger CRM providers (or doesn't want to pay for all of the features they provide). At the same time, it's avoiding direct competition with a larger, deep-pocketed competitor. The company says that it is meeting contractors where they are, which I think is the right approach for busy contractors.
Is Thryv a buy?
The SaaS revenue targets Thryv has laid out are ambitious and no small feat. But the company's focus on serving small businesses and its continual improvements and iterations of its product are a good start. Plus, as more digital natives open their own small businesses in the years to come, they will be increasingly comfortable with running their businesses from a software app like Thryv.
Furthermore, Thryv is trading at a very undemanding valuation of just 10 times next year's earnings, versus 35 times next year's earnings for Salesforce or over 100 times for HubSpot. Even if the company approaches these targets and doesn't quite get there, it will probably still result in a decent performance for shareholders. So don't close the book on the Yellow Pages operator just yet.