Canvas Company Instructure Misses Expectations, Stock Tumbles

Distilling Canvas LMS Accusations Of 'Openwashing'

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Instructure Canvas Pulse: The Thoma Bravo Saga

Press release of results for the third Quarter of 2016 reveals growth in revenues and users, still insufficient to recoup the investments made so far. Losses in the period amounted to USD 12.3 million.

Part of the effort involves growing the userbase of Canvas LMS. Whether a second place in growth of anglosaxon user enrollment, and a third place in a market heading into consolidation, count as acceptable results, depends on your buy-in.

Instructure advanced in the US helped by new contracts with public universities and school districts, like the University of Nebraska and Washington’s 4th largest district Kent. Government contracts tend to be markedly seasonal within the year. Adoption by international and corporate markets also increased, but the latter was achieved by Bridge LMS, not Canvas. Bridge has gained positive reception in finance, manufacturing and health care industries.

This did not seem enough for investors. Operating losses kept rising quarterly, in line with expenses. Increase in Research & Development does not explain the negative results, larger than total R&D budget in all this year’s quarters. This despite the highlight CEO Josh Coates gave to new products and features, including video learning platform Arc. CFO Steve Kaminsky alternatively explains the deficit as result of scaling efforts, which eventually should “realize operational efficiencies“. Kaminsky seemed to conflate marketing expenses within scaling.

While revenue and gross margins showed double digits increases, net and operating losses showed increasing progress. As a result, Instructure’s EPS (earnings per share) were negative, albeit a drastic improvement compared to the same Q of 2015.

The morning of the Q3 call saw shares trading at USD 25.55, not far from its historical maximum, 26.14, recorded only the previous October 21st. During the days after the call, up to the time of writing, the stock closed leveling around the 20 barrier.

Investors should not count on the government for a positive correction by the end of the year. CFO Kaminsky declared:

«What this means for the full year 2016 is a modest revision to our top-line expectations

With the mission to “make software that makes smarter people“, Salt Lake City Saas company Instructure began with the launch of Canvas in 2011, going public 4 years later. In 2015 they also launched Bridge, an LMS catering corporate segments. Instructure expects to be cash-flow positive “beginning in the second half of 2017“. Consideration about competition from Moodle and Blackboard was not discussed in the call.

Read the full Q3 earnings release by Instructure here.


So where in learning would you invest USD 100MM to maximize profit in the next quarter? Give us your predictions in the comments!



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