Could the owner of the yellow pages be the next multi-billion dollar SaaS company?

If I told you that the owner of the Yellow Pages directory was going to be the next multi-billion dollar software-as-a-service (SaaS) company, I would forgive you for being skeptical. But after laying out a plan to hit $1 billion in SaaS revenue by 2027 and $4 billion by 2032 at its Investor Day this week, Thryv Holdings ( THRY 2.50% ) seems serious with his ambitions.

The company estimates that revenues from its SaaS segment will be $207 million for 2022, with total revenues for 2021 being around $1 billion (including marketing, yellow pages and other ancillary activities). So $1 billion in revenue from just its namesake SaaS platform, Thryv, would be a game-changer for the Dallas-based company with a market cap of $900 million.

Image source: Getty Images.

Yellow Pages isn’t as bad as it looks

While you may not know Thryv by name, you’re probably familiar with the Yellow Pages, the phone book dropped off at your doorstep that lists numbers for local businesses in your area. It was basically the way to find a local plumber or restaurant before Alphabet‘s Google came into the picture.

Before we dive deeper into the more exciting part of growing the business, it’s worth mentioning that Yellow Pages business, while shrinking, isn’t as bad as it looks. it seems. While the product has become something of a “melting ice cube” with revenue dwindling over time thanks to the advent of Google, it is still being used and generating revenue with a decent margin. Although the company does not specifically detail the Yellow Pages, in its marketing services segment, Thryv estimates that it will generate $880 million in revenue this year, 59% of which will come from “printing, with a margin of EBITDA of 35% or more. This is a decent margin and a nice reserve of cash that the company can use to bolster its SaaS-based segment.

What is Thryv?

But Thryv is much more than the Yellow Pages. The company’s eponymous CRM platform has 46,000 customers and helps small businesses with all facets of their business, including marketing, customer relationship management, scheduling and even payments. Thryv tailors its product to small and medium businesses and contractors like plumbers, electricians, and HVAC companies. While entrepreneurs, in particular, can derive a lot of value from Thryv’s services, its value proposition is not limited to trades; hair salons and even doctor’s offices (Thryv is HIPA compliant) are among Thryv’s customers.

Thryv offers many valuable tools for small businesses and is continually improving its offering. For example, it offers a centralized inbox where a business operator can receive all their messages in one place, whether they are emails, SMS or messages via Facebook or Google. Thryv will soon add WhatsApp and Telegram to the service. Additionally, Thryv integrates with many popular tools and apps that small business owners use daily, such as Stripe, Shopify, Intuitiveof QuickBooks and PayPal.

Thryv has also added payments to its user value proposition with ThryvPay, and it is growing at an impressive rate. Payments volume was a meager $7 million annualized in Q4 2020 and increased to $101 million annualized in Q1 2022. The company is targeting $3 billion in annualized payments volume by the end of 2027.

Go where they are not

Thryv knows what kind of customers it wants and focuses on that base. The company says its ideal customers are established, service-based businesses with revenue of around $500,000 or more and 2-50 employees. Thryv estimates there are about 31 million small businesses in the United States, but he’s focused on working with the 4 million he seems best suited for. Think of a painting company that has grown over the past few years from owner-operator to a team of painters and vans to watch. Thryv CEO Joe Walsh said the 2010s was the decade of enterprise SaaS and that this decade will be the “decade of moms, pops, and small businesses running their businesses on mobile devices.”

What I like about this strategy is that in addition to the laser focus, Thryv targets a smaller market than that targeted by larger, more established CRMs like Selling power and HubSpot, so it serves a niche that is underserved by big CRM vendors (or unwilling to pay for all the features they offer). At the same time, it avoids direct competition with a bigger, deep-pocketed competitor. The company says it meets entrepreneurs where they are, which I think is the right approach for busy entrepreneurs.

Is Thryv a buy?

The SaaS revenue targets Thryv has set are ambitious and no small feat. But the company’s focus on serving small businesses and its continuous product improvements and iterations are a good start. Additionally, as more digital natives open their own small businesses in the coming years, they will become increasingly comfortable running their business from a software application like Thryv.

Additionally, Thryv is trading at a very undemanding valuation of just 10x next year’s earnings, compared to 35x next year’s earnings for Salesforce or over 100x for HubSpot. Even if the company gets close to these goals and doesn’t quite get there, it’s likely to result in a decent performance for shareholders. So don’t close the book on the Yellow Pages operator just yet.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

Calvin W. Soper