Thinkific lays off 100 as TSX’s bumper crop of 2021 tech IPOs continues to disappoint

Thinkific Labs Inc. THNC-T said Tuesday it is cutting 100 jobs, becoming the second alumnus of last year’s Canadian technology IPO rush in days to announce a shakeup after the collapse of its stock price.

Chief executive officer Greg Smith said in a release the “difficult decision” to cut 20 per cent of the Vancouver company’s work force followed “a rigorous review of our organizational structure,” adding the changes would “increase efficiency and lower costs without impacting our growth trajectory.”

“While it is the right decision for the business, it was not one we made lightly,” he said. “This is a difficult day for the Thinkific team, but we are resilient. I am confident in our future.”

The news comes days after Winnipeg’s Farmers Edge Inc., which also went public last year, announced the resignation of CEO Wade Barnes and a $75-million loan from investor Fairfax Financial Holdings Inc. as the agriculture technology vendor reported another poor quarter.

Both were early darlings of 2021′s IPO boom in Canada, which saw 16 tech companies list on the Toronto Stock Exchange. Thinkific, which provides a platform for entrepreneurs and businesses to create and run online courses, faced brisk investor demand when it set out to raise $160-million last spring, attracting $1-billion worth of orders. It went public at $13 a share and closed up 20 per cent in its debut last April, topping a $1-billion valuation.

Thinkific was riding a stretch of torrid growth early in the pandemic that saw revenue more than double to US$21-million in 2020 from 2019 levels as course creators and their customers flocked online. Analysts were forecasting 60-per-cent growth for the company in the years ahead. The IPO was a huge win for its top backer, local venture-capital firm Rhino Ventures.

But Thinkific’s stock fell below the issue price last October and continued to slide as early pandemic winners lost their lustre, with investors wondering how much demand might tail off as economies reopened. The spectre of rising interest rates then hit valuations across the tech space; all but one of the tech companies that went public on the TSX has traded below its issue price.

Then on Feb. 23, Thinkific provided a lighter first-quarter forecast than expected and said it would rejig its sales and marketing strategy. The stock fell 14 per cent and has since drifted further, closing Tuesday at $2.98.

“While Thinkific continues to have a good level of revenue growth” – with its guidance implying 41-per-cent growth in the first quarter – “their growth has decelerated more rapidly than expected” since the IPO, BMO Capital Markets analyst Thanos Moschopoulos said.

“They haven’t been achieving the level of return that I would have hoped – and, I presume, that management would have hoped,” Mr. Moschopoulos said. “In light of that, I think the restructuring makes sense.”

During an interview with The Globe and Mail three weeks ago, Thinkific’s CEO hinted changes were afoot. “Right now, for the stage we’re at, we’re spending too much and looking to be more efficient with that spend, but there are a lot of levers we can pull on being more efficient,” Mr. Smith said.

But layoffs didn’t appear to be part of the plan yet (Mr. Smith wasn’t available Tuesday). Mr. Smith said that after nearly doubling headcount last year to 500 people, “we have the team we need. Now we need to slow down hiring. … I think we’re going to hold steady at 500 or 550″ people. Mr. Smith was also asked whether Thinkific could return to 60-per-cent revenue growth. He declined to give guidance for 2021 but said based on anticipated improvements in the business, “next year and beyond we’re back to that 60-per-cent range.”

“While high growth [revenue] is what often drives corporate behaviour for these names, it can sometimes hide or fuel inefficiencies from an operating perspective,” said National Bank Financial analyst Richard Tse. “For Thinkific, I think the tailwind of growth caught up with them when it comes to those efficiencies.”

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