An executive at education software company PowerSchool Holdings Inc. took issue with the conclusions of a critical research report by investment bank Goldman Sachs that raised doubts about PowerSchool's growth potential.
Goldman Sachs initiated research coverage of Folsom-based PowerSchool (NYSE: PWSC) on Monday with a recommendation that investors sell PowerSchool shares and projecting a 12-month price target of $17 for PowerSchool stock. The shares fell $3.11, or 15.5%, that day to $17. The stock has since rebounded to $17.29.
The Goldman Sachs report marked the first time PowerSchool shares traded below their initial public offering price of $18, set this summer. Goldman Sachs was the lead underwriter of PowerSchool’s IPO in July.
“We were surprised and disappointed by the report," said Alan Taylor, senior vice president of corporate development and investor relations with PowerSchool, in an email to the Business Journal. "We do not believe it is appropriately capturing the value of our business, specifically around our cross-sell opportunity and success, which we and others in the analyst and investment community have come to appreciate,”
Since its IPO at $18 in July, PowerSchool shares have traded as high as $36.56 in August.
Taylor said PowerSchool's software products reach more than 70% of students in the U.S. and Canada, and that the average customer only uses two of the company’s 16 products. That is an opportunity to cross-sell products to existing customers, “a strategy which we’ve been successfully executing on for years," Taylor said.
The Goldman Sachs research report said that the funding environment for K-12 education is “complicated” as school funding comes from a mix of state, local and federal governments.
The report said PowerSchool is a “dominant provider of student information and learning management systems in K-12 in North America.”
Goldman said PowerSchool already has an “outsized share in several of its end markets,” that it counts more than 70% of school districts as customers and that it has 93 of the top 100 school districts in the U.S. and Canada as clients.
But the report said that “complex school budgeting” processes and “sticky incumbent technology” limit PowerSchool's ability to cross-sell more of its technology to its existing clients.
PowerSchool’s Taylor said the company is “still early in educating the analyst and investor community on our business and market and hope to continue the dialogue to help them better understand our past successes and future opportunities.”
PowerSchool’s IPO on July 28 raised $766.1 million, net of underwriting costs and commissions, and was the largest IPO by a Sacramento area company in memory. Along with Goldman, the IPO's underwriters included Barclays, Credit Suisse and UBS.
PowerSchool has been on a hiring tear in recent months. It hired 400 people since its IPO and CEO Hardeep Gulati told the Business Journal last month that it was still hiring for more positions. It has more than 3,000 employees. Many of the new hires are customer success and sales positions.
PowerSchool's software is used to support school administrators with programs that eliminate manual processes for everything from daily attendance to counseling to grades. The company also provides an online platform for virtual learning, and offers support to teachers, parents and students with online lesson plans. PowerSchool offers analytics and assessment products, as well as career counseling and college search.
