Procore Technologies: Opportunity For The Long-Term

Core Viewpoint - Procore Technologies is undergoing significant strategic changes aimed at enhancing customer relationships and operational efficiency, despite facing short-term challenges reflected in its stock performance and profitability [1][2][3]. Strategic Changes - Procore is shifting its go-to-market operating model, placing general managers in specific regions to foster deeper customer relationships and improve retention and expansion rates [2]. - The CEO believes this model will enhance product adoption and usage, ultimately increasing the lifetime value of customers [2]. - The company maintains its full-year 2024 revenue guidance of $1,141 to $1,144 million, indicating a year-over-year growth of 20% [2]. Financial Performance - In Q2 2024, Procore reported sales of approximately $284 million, a 24% increase year-over-year, with GAAP gross margins at 83% [8]. - The company added 152 net new customers, bringing the total to 2,191 customers contributing over $100,000 in annual recurring revenue, a 20% increase year-over-year [10]. - Operating cash flow for the quarter was $59 million, and free cash flow was $47 million, showing improvement compared to the previous year [10]. Challenges and Outlook - The CFO indicated that CRPO growth is not expected to accelerate in Q4, and the strategic changes may lead to lower operating margins in Q3 and Q4 of 2024 [3]. - Despite these challenges, the strategic changes are viewed as necessary for long-term growth, particularly in international markets [4][14]. - The company is still unprofitable and is expected to remain so through 2024 and likely into 2025 [5]. Valuation - Procore's valuation grade is a "C+" with a forward price-to-sales (P/S) ratio that has become more reasonable compared to competitors, indicating potential for continued revenue growth of 15% to 20% in the coming years [12][13].