Thryv Holdings’ SaaS Surge Masks Near-Term Headwinds – A Strategic Crossroads?

Thryv Holdings (THRY) reported its Q1 2025 earnings with a mix of progress and challenges, reflecting its aggressive pivot to a SaaS-driven business model. While revenue surged past expectations, an EPS miss and margin pressures triggered a 6.39% pre-market selloff. Yet beneath the volatility lies a company at a critical inflection point: leveraging its SaaS momentum to offset legacy headwinds and position itself for long-term growth.

SaaS Momentum: A Strategic Win
Thryv’s SaaS segment is the clear star of its transformation. Revenue grew 50% year-over-year to $111.1 million, now accounting for 61% of total revenue, up from 44% in 2024. Subscribers rose 59% to 111,000, driven by the integration of Keap’s automation tools and a focus on cross-selling. Notably, 17.2% of SaaS users now adopt multiple paid products, cutting churn rates by up to 50% and boosting net revenue retention to a record 103%.

The cross-selling strategy is paying dividends. Average Revenue Per User (ARPU) hit $335, with Keap’s specialized automation tools commanding a premium at $428 per user. This highlights Thryv’s ability to deepen engagement with its core customer base—small businesses in essential services like plumbing, dentistry, and home repair—whose resilience in economic downturns provides a natural hedge against macro risks.

The Near-Term Hurdles
Despite SaaS brilliance, Thryv faces execution risks and margin pressures. The reported EPS of -$0.22 missed estimates by 32%, exacerbated by temporary cost allocations from declining print revenue and elevated traffic expenses tied to SaaS add-ons. SaaS adjusted EBITDA margin came in at 10%, below the full-year target of 15%, signaling a need for operational discipline as legacy marketing services wind down.

The transition from marketing services to SaaS is fraught with complexity. Marketing revenue fell 42% YoY to $70.2 million, and print directory billings will extend to 24 months, delaying cost normalization. Meanwhile, net debt rose to $298 million, though the leverage ratio remains manageable at 2.2x EBITDA.

Valuation and Analyst Outlook
At its current price of $12.91, Thryv trades at a 22% discount to its $28 price target from analysts at InvestingPro, who cite undervaluation relative to its SaaS trajectory. The company’s $471 million full-year SaaS revenue guidance and $1.51 FY2025 EPS forecast suggest a turnaround is within reach, provided margins improve as projected.

Yet risks remain. A potential recession could test the loyalty of small businesses, though Thryv’s focus on non-discretionary services (e.g., emergency plumbing) offers some insulation. Additionally, competition in the SaaS space is intensifying, requiring continued innovation to maintain its 103% net revenue retention.

Conclusion: A Long-Term Play with Near-Term Volatility
Thryv’s Q1 results underscore a company at a pivotal juncture. The SaaS transition is delivering top-line growth and customer stickiness, but margin expansion and debt management will determine its success in 2025. With a strong buy consensus and a valuation gap of 53% to its price target, the stock offers compelling upside for investors willing to overlook near-term volatility.

However, the path to profitability hinges on three key factors:
1. Margin Improvement: Achieving the 15% SaaS EBITDA margin by year-end will be critical to offset legacy costs and justify its valuation.
2. Cross-Selling Scale: Expanding multi-product adoption beyond 17% to drive further ARPU and retention gains.
3. Deleveraging Progress: Reducing net debt below $300 million while maintaining SaaS growth.

For now, Thryv’s stock remains a high-risk, high-reward bet on its SaaS future. Investors with a multi-year horizon may find value here, but short-term traders should tread carefully. As CEO Joe Walsh noted, the shift to SaaS is “not just a strategy—it’s a transformation.” The market will demand tangible proof of execution before rewarding the stock fully.

In conclusion, Thryv’s Q1 results are a reminder that strategic pivots often involve growing pains. While the EPS miss and margin challenges are real, the SaaS tailwinds and customer resilience suggest this is a company worth watching—especially for those betting on the long-term dominance of recurring revenue models in tech-driven industries.