vance - Trading Ideas: Brightcove (BCOV) Set To Benefit From Video

Online video platform provider Brightcove, Inc. (NASDAQ:BCOV) is well positioned to benefit from the changing manner of video consumption, evolution of video content on the Internet, proliferation of high speed Internet access, emergence of social media, and an increasing number of different mobile devices.

Brightcove offers Video Cloud, an online video platform that enables its customers to publish and distribute video to Internet-connected devices. The company's Video Cloud platform offers various features and functionalities such as uploading and encoding, content management, video players, live video streaming, distribution and syndication, social media, advertising and monetization, and integrated video analytics.

According to Cisco, internet video represents about 40 percent of consumer internet traffic and is expected to grow to about 60 percent by 2015. The increase is driven by the rapid adoption of smartphones and tablets, higher connection speeds, lower creation costs as well as the rich?consumer experience offered through video.

During 2011, Brightcove's customers delivered and average of approximately 743 million video streams per month with its Video Cloud platform.

"In our opinion, the Brightcove Video Cloud does a better job of organization and categorizing video content and driving that content across Web sites and devices compared to free video sharing sites, in-house solutions and other online video platform players," RBC Capital Markets analyst Robert Breza wrote in a note to clients.

Brightcove started trading Feb.17 on the Nasdaq. The company sees a sizable growth opportunity at more than $5.8 billion by 2015 at a CAGR of 26 percent from 2011.

In terms of business model, Brightcove prices its products on a subscription basis or as software as a service (SaaS) as it lowers the upfront risk of deploying an in-house, perpetual-based software license solution on top of either new or existing hardware.

The robustness of the product and subscription model has built a highly diversified customer base of over 3,872 in 50 different countries which represents less than 1 percent of potential customers.

"We believe that when corporations weigh the costs and complexities of building a video content distribution platform and the numerous shortcomings of video-sharing Web sites, they are likely to realize that turning to an outside video content distribution platform provider, such as Brightcove, makes the most sense for their video libraries," Breza noted.

The analyst noted that the company has high customer retention as the recurring dollar? rate has been in excess of 93 percent in each quarter of 2011, and trended above 86 percent in each quarter of 2010.

In addition, Brightcove has significant international operations and presence for a company of its size and maturity. During 2011, more than half of all Video Cloud video streams were to international locations. In 2011, the company generated approximately 34 percent of its revenue from customers located outside of North America, up from 32 percent in 2010.

"We expect the current and additional international opportunities to represent a significant area of growth and to trend toward a 50/50% mix over the long term," the analyst said.

Brightcove's total revenue has progressed from $8.5 million in 2007 to $24.5 million, $36.2 million, and $43.7 million in 2008, 2009, and 2010, respectively. Revenue in 2011 totaled approximately $63.6 million, which reflects a year-over-year growth rate of approximately 46 percent.

Breza expects about 21 percent growth in 2012 and believe the company can accelerate its revenue growth rate to approximately 32 percent in 2013.

"Given the early stage of its growth profile, Brightcove has yet to turn a profit, but we estimate that should change over the next several years as the company ramps up and scales against its expense base," said Breza, who has an "outperform" rating on Brightcove shares.


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