Money Morning's oversold stock pick of the week is cloud-based video services provider Brightcove Inc. (Nasdaq: BCOV.)
Sometimes stocks get beaten down unfairly - but they're actually a great value. The share-price dip then gives investors an amazing entry point into a good long-term investment.
Brightcove stock was one of Money Morning Chief Investment Strategist Keith Fitz-Gerald's recommendations until he was stopped out of it last June. But given its lower price and strong prospects for the future, he still likes BCOV stock.
Brightcove Inc.: About the Company
Brightcove was founded in 2004 in Boston by Jeremy Allaire. Now Chief Executive Officer and founder of Bitcoin startup Circle, Allaire remains Brightcove's chairman of the board. The company went public in 2012. Brightcove provides cloud-based services for video content delivery. It sells its services on a subscription basis. Customers include Oracle Corp. (Nasdaq: ORCL), Ford Motor Co. (NYSE: F), and Bank of America Corp. (NYSE: BAC). Brightcove has more than 5,770 customers in more than 70 countries. The company employs about 400 people. BCOV has a market cap of $261 million.
Brightcove Stock: Why It's Oversold
Brightcove stock has had its share of volatility in its three-year history. In the two months following its IPO in January of 2012, BCOV stock more than doubled from its IPO price of $11. It's been on a rollercoaster since. In October of 2013 Brightcove stock rose as high as $16.25 before tumbling again. Wall Street became increasingly skeptical of the company's ability to turn a profit. But in July lower guidance really spooked investors. BCOV stock plunged 37% in one day. A few months later, Brightcove stock was flirting with $5. On Friday Brightcove reported a loss of $0.05 a share, but it was a beat. Wall Street was looking for a loss of $0.08. That positive news has helped BCOV stock to reach $8.15, but it's still down 50% from its highs of late 2013.
In Brightcove's case, there's a profit opportunity for investors who step back and look at the big picture...
Why BCOV Stock Is a Buy
One reason Brightcove lowered its guidance in July is because it knew it would lose some customers in the coming quarters. But the company strategy is to focus on winning and retaining what it calls "premium" customers, which bring in more revenue. Last week Brightcove reported that its average subscription revenue per customer was up 7% year over year. The company also foresees becoming profitable by the fourth quarter of this year. So that strategy is starting to bear fruit. But the real key to BCOV's success is that the cloud-based video streaming business is on the verge of breaking out. According to Nielsen, content viewed online is up 62% over the past year, while traditional TV viewing slipped 4%. Enterprise video delivery in particular - Brightcove's bread and butter - is accelerating. And companies are finding it easier to outsource online video, which will mean a steady stream of new customers for Brightcove.
Fitz-Gerald sees Brightcove as a "pick-and-shovel" play for the digital era. "As this new model of online video emerges, the space to look is content delivery companies - companies like Brightcove," he said.
But BCOV stock has another possible catalyst. Because of its cutting edge video delivery technology, impressive customer base, and relatively low valuation of $261 million, Brightcove is a prime takeover target. Possible suitors include Akamai Technologies, Inc. (Nasdaq: AKAM), Amazon.com, Inc. (Nasdaq: AMZN), and Microsoft Corp. (Nasdaq: MSFT).
Investing in Brightcove Stock (Nasdaq: BCOV)
The pop from Friday's positive earnings announcement has stuck so far. But such quick advances in the Brightcove's recent past have been followed by pullbacks of 12% to 14%. So investors looking to add BCOV stock should put in an order for 50% of their intended position now. A pullback of at least 10% over the next month or so is a good possibility. Investors can then use that opportunity to buy the remainder of their Brightcove stock position. The one-year target price on BCOV is $10.17, a 25% gain from the current price. But longer term Brightcove stock could climb back into the mid-teens - particularly if it becomes an acquisition target.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.