Legacy Decline Will Hinder SaaS Transition While Unveiling Opportunity

Key Takeaways

• Ongoing decline in core ad revenue and increased competition may hinder SaaS margin gains and threaten future profitability.
  
• Focus on upselling and new product launches faces risks from slowing subscriber growth, market saturation, and challenges in diversifying beyond North America.
  
• Persistent decline in legacy revenues, flat SaaS growth, acquisition challenges, intense competition, and high churn risk threaten Thryv's long-term revenue stability and margin expansion.

Catalysts

Provides digital marketing solutions and cloud-based tools to the small-to-medium-sized businesses in the United States.

• While Thryv has successfully navigated past a major financial pinch point and now claims improved financial flexibility with lower required amortization and a pathway to generate free cash flow, the company's ongoing transition away from legacy marketing services still exposes it to the risk that the decline in high-margin print and digital ad revenue will outpace SaaS profitability gains, which could hinder sustained EBITDA margins and free cash flow stability.
  
• Although the expansion of Thryv's SaaS offerings and progress in multi-product adoption among its client base are expected to increase average revenue per user and support revenue growth, the flattening of subscriber growth in 2025-due to a deliberate focus on upselling existing customers rather than acquiring new ones-may cap the pace of top-line expansion, with ARPU growth likely required just to offset churn and contraction.
  
• While launching vertical SaaS solutions such as Thryv for HVAC taps into the trend of small businesses increasing their reliance on integrated platforms for business management, the strategy's sustainability is threatened by increasing competition from larger vertical SaaS players and big tech firms who are rapidly consolidating the market, potentially raising customer acquisition costs and reducing Thryv's ability to expand share or command premium pricing, impacting long-term revenue growth and margins.
  
• While Thryv's cross-sell motion and new product launches, such as Workforce Center and expanded automation tools, are positioned to deepen client engagement and reduce churn in line with the desire among SMBs for unified digital workflows, the stickiness of these products may be limited by the strong commoditization and fragmentation across the SMB SaaS market, increasing the risk that ongoing product investments will not deliver proportional increases in net retention or durable margin expansion.
  
• Despite early international expansion efforts and ambitions to diversify revenue streams outside the US, prior pullbacks in investment due to deleveraging, as well as risks tied to execution in unfamiliar geographies, may prolong Thryv's dependence on the North American SMB sector, a segment vulnerable to macroeconomic headwinds and elevated failure rates that would pressure both top-line resilience and earnings visibility over the long term.

Thryv Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Thryv Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Thryv Holdings's revenue will decrease by 8.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -11.1% today to 13.7% in 3 years time.
• The bearish analysts expect earnings to reach $80.9 million (and earnings per share of $1.79) by about September 2028, up from $-83.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.3x on those 2028 earnings, up from -6.5x today. This future PE is lower than the current PE for the US Media industry at 20.6x.
• Analysts expect the number of shares outstanding to grow by 4.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.57%, as per the Simply Wall St company report.

Thryv Holdings Future Earnings Per Share Growth

Risks

• Thryv continues to experience a managed but persistent decline in its legacy Marketing Services revenue, and as the business transitions to a pure-play SaaS company, the pace of SaaS growth may not fully offset the evaporation of high-margin legacy revenues, which could put overall revenue and gross margin expansion at risk as print and directory-related cash flow winds down approaching 2028 and 2030.
  
• The company's SaaS customer base is expected to remain flat through 2025, with growth focused on increasing ARPU rather than customer acquisition; if Thryv is unable to accelerate new subscriber growth in future years, top-line growth could stall, leading to potential revenue stagnation and pressure on net earnings.
  
• Keep, the recent SaaS acquisition, had a declining revenue base prior to purchase and continues to face challenges in driving profitable direct customer acquisition, which has resulted in Thryv intentionally pulling back on unprofitable sales; ongoing underperformance in the Keep segment could limit cross-sell synergies and weigh on overall SaaS revenue and EBITDA growth.
  
• Increasing competitive intensity from large-scale horizontal and vertical SaaS players (such as Google, Intuit, and ServiceTitan) and industry consolidation may crowd out Thryv's offerings, which could increase customer acquisition costs, intensify commoditization, and erode gross margins and long-term earnings power.
  
• High churn rates are inherent to small business customers, and while Thryv's multi-product attachment strategy aims to reduce churn, any setbacks in product-market fit, verticalization efforts, or integration with third-party platforms could prevent further improvement in net revenue retention, directly impacting recurring revenue and compounding earnings volatility over time.

Valuation

• The assumed bearish price target for Thryv Holdings is $16.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Thryv Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $16.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $590.8 million, earnings will come to $80.9 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 7.6%.
  
• Given the current share price of $12.5, the bearish analyst price target of $16.0 is 21.9% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.