Needham Remains Bullish On Phreesia & Udemy; Adds Both To Conviction List

  • Needham analyst Ryan MacDonald maintained Phreesia Inc PHR with a Buy and raised the price target from $35 to $40.
  • The analyst selected Phreesia as the top Digital Health pick for 2023, adding the stock to the Needham Conviction List. 
  • The selection of PHR reflected MacDonald's thesis that scaled GTM functions and innovations will contribute to revenue acceleration in both Subscription + Payments and rapidly developing Network Solutions. 
  • MacDonald saw the potential for $27.5 million in revenue upside to the FY24 consensus from scaling the existing client base and penetrating the Medicare age-in opportunity while additional upside drivers remain in-play. 
  • With investments complete, revenue upside and expense management create a setup for margin outperformance relative to PHR's FY25 targets. 
  • As a result, the analyst believes PHR will outperform on the top and bottom lines and view PHR's current multiple as an attractive entry point.
  • MacDonald reiterated Buy on Udemy, Inc UDMY with a $17 price target.
  • The analyst selected Udemy as the top Ed Tech pick for 2023, adding the stock to the Needham Conviction List. 
  • The selection factored in the analyst's thesis that, despite macro-related headwinds, the company's growth engine, Udemy Business, can continue to grow well north of 40% in FY23. The new logo growth internationally and wallet share gains within the existing customer base in a tighter budget environment likely to drive consolidation aided the growth. 
  • Outside of UB, MacDonald believes promising web traffic trends, easing comps, and the potential for rising unemployment will stabilize the consumer segment. 
  • On the bottom line, UDMY's increased focus on hitting breakeven creates the potential for upward revisions to FY23 adjusted EBITDA. When combining this with a valuation of 1.1x the analyst's FY23 revenue estimate, MacDonald believes UDMY will likely outperform.
  • Price Action: PHR shares traded higher by 3.57% at $31.93, and UDMY shares traded higher by 3.94% at $11.08 on the last check Wednesday.
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