March 03, 2020 - 11:31pm EST by
Shooter McGavin
2020 2021
Price: 61.00 EPS 0 0
Shares Out. (in M): 129 P/E 0 0
Market Cap (in $M): 850 P/FCF 0 0
Net Debt (in $M): -40 EBIT 0 0
TEV (in $M): 810 TEV/EBIT 0 0

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Kahoot! is an ~$850mm market cap EdTech company, founded in 2013, that trades in Norway’s Merkur Market within the OSE (one step above OTC, though it’s fairly liquid all things considered).  It trades at 38x annualized Q4 invoiced sales and is by far the growthiest name I’ve written up.  And there’s nothing all that unique about Kahoot!’s technology (it just happened to catch lightning in a bottle).  I assume I’ve lost most of you by this point.

If you’ve never heard of Kahoot!, you may wish to ask your kids, or any K-12 teachers you know whether they use it.  The app is currently ranked #8 within the Education category on Apple’s App Store.  It’s a quiz-based game platform created to help kids pay attention and stay engaged in the classroom.  It has morphed into something that has been adopted by corporate managers for training purposes as well.  In 2019 over 200 million games were played with over 1.2B participants in over 200 countries.  All of this was hosted by 15.8 million active users.

Here’s a quick news story on the service: https://www.fox5ny.com/news/why-new-york-city-students-are-playing-games-in-class

Kahoot! is growing quickly, with active accounts growing 26% in Q4 y/y and paid seats up 279% y/y (Q4 paid seats up 27% q/q).  What I believe makes the model [somewhat] unique is that adoption has been driven by teacher pull, not administrative push.  There is no sales cycle and the company has grown without any marketing budget.  This is primarily freeware that makes teachers’ (or corporate managers’) lives easier.  Though the vast majority of users are not paid, the typical profile of a paid user is someone that spends approx. $5 out of pocket per month on their personal credit card (without caring about reimbursement) because it’s worth it to them.  Paid users of 152,000 (+279% y/y) comprise approximately 1% of all active users.

Kahoot! makes it easy for teachers to create a multiple-choice quiz based on whatever they’re teaching at the moment, and then administer the quiz in real time.  Teachers can also choose from a repository of Kahoots made by other teachers.  Questions are displayed on a projector, while kids respond to questions using any sort of connected device (laptop, smartphone, tablet).  This is not a data-tracking system.  Kids log into a Kahoot session with only a Game PIN and make up their own nicknames each time.  Anonymity takes pressure off the children, makes it more fun, and fosters more interaction.  The lack of data logging also means that teachers can use it without requiring approval from above.  The company’s motto is: Make learning awesome!

Here’s a quick video providing an overview of how it’s implemented: https://www.youtube.com/watch?v=V4FQ-j91waA

The entire model (for all but Kahoot! Academy, more on this below) is totally self-service, thus incremental cost of revenue is incredibly low.  When I spoke to management at the time of the IPO (late last year), I believe there was only one person in “sales.” 

Separate from the Kahoot! quiz platform, the company also bought two learning apps, Poio (reading) and DragonBox (math) for a combined $25 million in two separate 2019 deals.  The company believes they can grow these through investment (additional languages, etc.) and convert Poio to a recurring revenue stream.

The company has a $850mm market cap, no debt, $41mm in cash, and reached FCF breakeven (+$1mm) in Q4 2019.  The investment thesis is that the company will continue to grow and attempt to increase its percentage of paid users.


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If the company hits its 2022 targets for invoiced ARR and keeps costs in line like the model should allow, the company is trading at EV/Invoiced Sales2022 of 7x (+/-) and somewhere in the 15x EBITDA range.   I understand these are lofty multiples in a vacuum, but I believe there will be also be real upside in the more formal enterprise business dubbed Kahoot! Academy as well as with continued growth beyond 2023.

Kahoot! Academy was formally launched in late 2019 (https://kahoot.com/blog/2019/10/01/deliver-impactful-training-at-scale-kahoot-academy/).  It allows a Corporate client to use the Kahoot! system for its training materials, but in a client-branded manner.  It will not be anonymous and will allow user tracking to make it a more useful tool for managers to, for instance, oversee sales teams (etc.).  This is expected to generate significantly better economics than the educational/home sides of the business, as businesses will be assessed a recurring fee along with a per-employee (user) fee.  But these fees would still be a far cry from the prices of more formal enterprise software packages, to say nothing of ease of use, and customer satisfaction.  This may sound pie-in-the-sky, and readers should naturally question how easy it will be to penetrate enterprise.  However, Kahoot!’s data already shows significant employee usership within companies like LinkedIn, Coca-Cola, KPMG, Nationwide Insurance, Comcast, JP Morgan Chase, Roche, etc.   Somehow without any marketing, corporate employees at large firms are figuring out that Kahoot! can be used to make their lives easier—and the company seeks to sieze this opportunity in a more formal manner.

At some point down the road the company believes it can create a marketplace where content creators (most likely teachers) will be able sell their Kahoots on an exchange, sort of like www.teacherspayteachers.com.  This seems like a way to create a bit more of a network effect more than a real revenue opportunity.

I’d guess that the biggest risk is potential displacement by competing platforms (Survey Monkey, etc).  But I tend to believe that the word-of-mouth is very strong for Kahoot! and it has become a bit of a de-facto standard.  Users love Kahoot! and given its existing position, I don’t doubt there are years of real growth ahead for the business.

Employees and insiders own 26% of the company.  They seem rational and entrepreneurial to me.  Disney owns 4%, while Microsoft owns 5%.  Note that Kahoot has been able to utilize National Geographic & Disney content on favorable terms given its relationship with Disney.  It also has a relationship with Getty images to make the Kahoot creation process seamless on paid tiers.

Here’s a company presentation from their late 2019 private placement done at NOK 38/share: https://kahoot.com/files/2019/09/Kahoot_Company_Presentation18September2019.pdf

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Continuation of rapid growth

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