Friday, March 25, 2011

Chatting with John Baker about the future of D2L

Last week I had the opportunity to chat with John Baker, CEO of D2L for 30 minutes or so. I was telling him how I am frequently contacted by various people about two main questions:

1) my experiences over the past 7.5+ years as a D2L client (now ended, unless an unemployed person can still be a "client").

2) my opinions about the future of D2L, especially from an investment perspective. In particular, these questions tend to fall into two main categories:
=> a) do I think D2L is going to sell out to the highest bidder (this Q has been around for all of those 7.5+ yrs.), and
=> b) is D2L preparing to issue an IPO (initial public offering of stock) and go public?

John and I talked at length about these things. I told him that the speculation about an IPO seemed to be especially hot right now. He told me that this is not something that they have even talked about, and that he has no interest in even looking at that possibility at this time.

For a company like D2L, going public would serve to crush their corporate culture, IMO. They currently only have themselves to answer to, and that seems to work quite well for them. Stockholders, meeting Wall Street expectations, constant pressure on revenue growth and earning growth - who needs it, right?

Either selling out or going public would certainly serve the purpose of cashing in on their position in the LMS market, but that's about all it would do. If the D2L decision makers were interested in either of these options, they would most likely have already done so or at least be on the verge of doing so. But I'm very certain that they are quite happy in their own skins right now. I believe him when he tells me that they are not considering either one of those options.

Speaking about Wall Street expectations, has anyone checked lately to see the size of the short interest in Blackboard? The short interest represents the number (and %) of shares that have been sold short - which means that the investor doesn't actually own the stock, but they are expecting/hoping/gambling that the price of the shares will do down. Since Feb. 2010, the # of shares sold short has increased rather steadily from 7.67 million to the current level of 13.48 million, which represents 45% of the float in Blackboard. Ouch. You've gotta wonder what that feels like to have so many people betting against you.

Just for reference, Microsoft is looking at short interest of just over 1%, as is CISCO. Even Yahoo only has a short interest of 4.8% of float, and they can't get out of their own way in screwing up everything they touch. One more point of reference. As I write this, Blackboard is in the top 5 for the largest short positions on the NASDAQ (as % of float).

How is that related to D2L? Probably in several ways, but in particular I'll just say that D2L doesn't have to worry about this kind of stuff while they remain a private company. I personally believe that this is one reason why D2L has remained focused on education and educators. They don't have to deal with all the Wall Street distractions. They should keep it that way.

(CC attribution image by rightee)


chad said...

When comparing D2L as a private company to those that have to answer to a board, the claim that D2L has the advantage of only answering to themselves makes sense.

I understand that claim in the context of the comparison, but I find it curious that there's no mention that they have to answer to their clients.

I really think it's innocuous, but curious if you read it with the eyes of a client...

Anonymous said...

On the other hand, a public offering would serve D2L and their clients by ensuring that they have the resources to invest in new product development or even acquisition. I also think that BB's status with regard to shorts is probably because of the fact that the market looks more favorable for some of it's LMS competitors than it does for BB, especially in the wake of it's announcements regarding the WebCT and Angel products. I don't think that's a good argument against an IPO, in other words.
That said, I think the conventional wisdom is that an IPO isn't worth the headache until you're well over $50M in revenue. And I don't think that's the case with D2L yet.