PSB Monthly Issue August 2014
August 2014
FOR THIS COMPANY
There’s no denying the power of online video. More and more, consumers have become reliant on web-based video for media, marketing, and more.
Just take a look at some of these stats…
In January of 2014, 190 million Americans watched an average 397 online videos per person. By the way, that’s 61% of the population!
What’s more, about 36% of those videos were advertisements (which just goes to show you the power of video marketing).
Moreover, in 2013, one in six videos was watched on a mobile device. That number is sure to be higher by now. Just think of the penetration a company can get with how commonplace smart, mobile devices are.
In other words, online video has become the go to channel for both media and marketing. Consumers watch their rental movies online, companies create videos to market their products, and everything in between.
Here’s the thing…
Online video solutions require time and effort. You don’t just go create videos, host them, and link them to your infrastructure without professional help.
Some mega-companies can afford to internalize their video needs. However, most companies need to outsource those services.
One such company is Brightcove (NASDAQ: BCOV).
Name: Brightcove Ticker Symbol: BCOV Market Cap: $205 million Recent Price: $6.10 PSB Rating System 4.7 Stars Raging Revenue: (4.5 stars) The company’s quarterly revenue increased 15% year-over-year. With the rapid growth in online video, that number could skyrocket in coming quarters. Beautiful Books: (4.8 stars) BCOV has over $20 million in cash compared to just $1 million in debt. That’s definitely a healthy ratio. Stellar Structure: (4.9 stars) The company has very strong institutional ownership at 71%. Insiders own another 6%. The smart money is clearly invested in this stock. Valuation Verification: (4.6 stars) BCOV’s current price is the result of significant overselling. As such, the stock price could realistically climb 80% in a relatively short time frame. Meaningful Milestones: (4.7 stars) BCOV recently announced it will power a new video feature for local search giant Yelp (YELP). Yelp generates 132 million monthly unique visitors to its site, so this could be a huge revenue boost for BCOV. |
VIDEO SERVICING BUSINESS
BCOV provides cloud-based services for video. The company’s primary offering is an online video platform allowing customers to publish and distribute video to any device connected to the Internet. In addition, the company offers a cloud-based media processing service and video player technology.
While Brightcove has several different product and service offerings, the company essentially focuses on two areas, media and marketing.
BCOV’s digital media solutions are designed to remove the complexity of multi-screen video distribution. That is, the company helps its clients deliver high quality video playback regardless of the playback device or platform.
Meanwhile, the company’s digital marketing solutions are meant to drive demand and increase conversions (sales) using online video. Keep in mind, online video marketing is one of the most successful methods of advertising in the mobile/digital age.
One of the reason we like this company is due to the huge potential market for its services. However, there are even more compelling reasons to invest in BCOV… so let’s look at the numbers.
THE NUMBERS
BCOV posted a strong second quarter, however the company lowered guidance. We’ll get back to guidance in a minute.
First off, second quarter revenue came in at $31 million, which represents a 15% year over year increase. The gains were driven by subscription and support revenue.
Meanwhile, the company’s adjusted net loss was $1.4 million for the quarter, or $0.04 per share. That’s significantly better than $0.11 per share loss expected by analysts.
BCOV’s cash holdings are at $21 million, and the company has just $1 million in debt. The strong cash to debt ratio suggest the company can look into acquisitions, share buybacks, or just long-term sustainability of operations.
Here’ the thing…
The biggest news from the most recent earnings report came in the form of lowered guidance. Basically, the loss of Rovio (maker of Angry Birds) as a customer and the lengthy integration of an early year acquisition are causing a short-term drop in revenue and income expectations.
Fully year revenue is expected to come in between $122 to $123.5 million compared to $129 million projected previously. Adjusted loss is expected to fall to between $0.24 and $0.28 per share. Analysts expected $0.22.
The lowered guidance caused investors to freak out and shares to plunge 37% the day after earnings.
So let me get this straight… the company is lowering guidance for the short-term and could generate about 5% less in revenues than expected while posting 10% to 20% increased losses. That’s bad, but not THAT bad – and definitely bad enough to warrant a 37% plunge in the share price.
This is a classic case of overselling.
INVESTMENT RISKS
As with any small cap investment, BCOV does have a few risks.
A slowdown in online video growth could lower demand for BCOV’s services and hurt revenue generation.
The company’s latest acquisition could take longer to integrate than expected, which may delay income growth.
Finally, other competitors could enter the space and put pressure on sales and negatively impact revenues.
POTENTIAL RETURN OF 80% OR MORE
BCOV is a strong player in a rapidly growing industry. The company has an intriguing product lineup and excess cash in reserve. Nevertheless, the stock has taken a beating due to lowered guidance for 2014.
We believe BCOV is going rebound sharply as savvy investors realize how oversold the stock is.
The stock’s 52-week high is over $16 per share, a full $10 higher than the current price. While the stock may not return to the highs anytime soon, it could easily climb back to the 200-day moving average around $11 per share.
Based on our analysis, we see BCOV climbing to $11 a share or more. Buy the shares now for potential gains of 80% or more!
ACTION RECOMMENDATION
BUY Brightcove (NASDAQ: BCOV) up to $6.70 per share.
Recent price is $6.10
Use a stop-loss of $4.25 on this position.
Don’t forget your position sizing and stop-loss rules.
Here are some highlights from the past couple weeks…
- In case you missed it, on July 25th, Aware (AWRE) issued a one-time $1.75 dividend, effectively lowering our initial buy price to $3.51.
- Nevsun Resources (NSU) and Aware (AWRE) both reached new highs since our last update.
- With the recent new highs, we’re moving Nevsun Resources (NSU) from Buy to Hold.
Category: PSB Monthly Issues
