LogMeIn Reaches Out and Touches Profits

Alas, poor Yorick, I knew you well ... yet I sold you too soon.        

Three months ago, I offered effusive praise to LogMeIn (Nasdaq: LOGM  ) , the software maker whose products let you "log in" (natch) to one computer and control while sitting at an entirely different computer, whether that second comp is located right next door, or thousands of miles away. Investors, who sold off the stock in response to Q2 earnings, soon came around to my way of thinking and drove the stock up far beyond my best guess at the stock's intrinsic value. They've since reversed course, of course, driving the shares up to unheard-of heights ... and rightly so.

Don't beam me up. LogMeIn!
Because as LogMeIn demonstrated to investors yesterday, this company's growth spurt is just getting started. Reporting Q3 earnings by the quaint method of filing an 8-K report with the SEC, the company had everything to boast about:

  • Q3 revenues that beat last year's haul by a good 34%.
  • Quarterly profits of $0.16 per share, which more than doubled last year's take.
  • Plenty o' cash on the balance sheet -- $156 million in cash, equivalents, and short-term marketable securities.
  • Best of all, LogMeIn produced so much free cash flow last quarter ($5.9 million), that there's nary a chance LogMeIn will need to tap its cash reserves any time soon.

Heck, even LogMeIn's bad news wasn't all that bad. The plan to sever relations with erstwhile supporter Intel (Nasdaq: INTC  ) remains on track. Then again, I'm not at all sure LogMeIn needs the help anymore. Apple's (Nasdaq: AAPL  ) continuing antipathy to Adobe (Nasdaq: ADBE  ) software seems tailor-made to support demand for LogMeIn's "Ignition" software. And even if Steve Jobs comes to his senses, LogMeIn's ready with a new "Ignition" product for Android-armed hardware such as the smartphones Motorola makes.

Valuation
Free cash flow dipped slightly in comparison to the year-ago quarter, but year-to-date FCF is running hot at $19.8 million, and the company looks on track to generate roughly $26.4 million by year-end, giving it an enterprise value-to-free cash flow ratio of about 27.

Mind you, that still looks pricey if all the company does is match Wall Street estimates of 21% long-term growth. Also, the company still faces competition from larger competitors like Citrix (Nasdaq: CTXS  ) and Cisco's (Nasdaq: CSCO  ) WebEx suite. Then again, after four straight quarters of beating those estimates with a stick, I'm beginning to doubt LogMeIn will limit itself to meeting such low expectations.

Fool contributor Rich Smith owns shares of Google, but no longer owns LogMeIn. The Fool has a disclosure policy.

Intel is a Motley Fool Inside Value recommendation. Apple and Adobe Systems are Motley Fool Stock Advisor choices. The Fool has written calls (Bull Call Spread) on Cisco Systems. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Apple and Intel.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community.


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