William Blair initiated research coverage of Paycor HCM, Inc. (PYCR $26.52), a cloud human capital management (HCM) provider that targets businesses with 10 to 1,000 employees.
Analyst Matthew Pfau stated that given the size of Paycor’s market opportunity and the company’s competitive positioning, revenue is expected to increase in the 15% to 20% range annually over the next five years.
“Founded in 1990, Paycor started out as a regionally focused, on-premises payroll provider but has evolved into a SaaS HCM provider, with a presence across the United States; over 30,000 customers and 2.3 million employees on its platform; and products covering core HR and payroll, talent management, workforce management, employee experience, and benefits administration,” said Pfau. “We believe that Paycor differentiates itself from its competitors through its unique vertical go-to-market strategy and its broker partnerships. Many competitors leverage a horizontal approach, whereas Paycor’s platform has specific vertical integrations aligned to its four core markets of healthcare, manufacturing, food and beverage, and professional services. Paycor’s differentiation is evident in its results, with historically strong win rates over the past couple of quarters and the company gaining 60 basis points of market share over the past two years, in our estimation.”
Pfau added, “The payroll and HCM market is massive and we size Paycor’s total addressable market at over $30 billion, placing the company at roughly 1% penetration considering its expanding product set and ability to sell more products to new and existing customers. In addition to the sheer size of the market, there are several tailwinds that should aid Paycor over the next several years, including the tight labor market, remote and hybrid work, and increasing regulations. Paycor is also well positioned competitively for several reasons, in our view. First, the HCM and payroll space is difficult to enter and achieve scale, with few payroll providers scaling to the $200 million-plus annual revenue milestone. Second, the overwhelming complexities of U.S. state and local taxes act as a stiff barrier to entry. Lastly, the critical nature of payroll and data sensitivity associated with HR processes make customer trust paramount in the selection of a software provider, making it difficult for a new entrant to gain traction, particularly in the midsize and enterprise markets.”
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