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Why Brightcove Is Down by 21% Today

By James Brumley – Oct 28, 2021 at 12:22PM

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Investors are struggling to look past disappointing guidance and a looming leadership change.

What happened

Shares of cloud-based storage company Brightcove (BCOV 3.43%) were trading 21.1% lower just after midday Thursday in response to Wednesday's post-close quarterly investor update. While the company beat the earnings and revenue estimates tendered by the few analysts who follow it, guidance for the quarter currently underway left investors wanting. The company also announced that CEO Jeff Ray will be stepping down from that role at the end of 2022.

So what

For the third quarter, Brightcove turned $52.1 million in revenue into an adjusted per-share profit of $0.05. The top line was up 6% year over year, but earnings were less than half of the $0.11 per share result from the prior-year period. Yet both third-quarter numbers came in better than expected. Analysts had been collectively modeling for earnings per share of $0.02 on sales of $50.9 million.

Management isn't anticipating much improvement for the fourth quarter either. It informed investors it expects to earn between $0.02 and $0.04 per share on revenue of between $51 million and $52 million. In Q4 2020, Brightcove did $53.7 million worth of business, earning $0.05 per share in the process. Analysts are anticipating a profit of $0.07 per share this time around, with revenue expected to roll in at $55.2 million.

Falling stock chart on a computer screen.

Image source: Getty Images.

Given that he's staying on through the end of next year, Ray's impending retirement doesn't appear to be linked to the so-so third-quarter results or the continued headwinds the company faces. Rather, after helming the company for four years -- the last of which has been challenging for a variety of reasons -- it's time for a change.

Now what

While the company's guidance for the current quarter is lackluster, it may also be conservative; Brightcove tends to beat its earnings estimates. The upcoming exit of a successful CEO may also be giving shareholders pause, but perhaps unnecessarily so. Either way, Brightcove's bigger-picture growth prospects remain compelling. That makes Thursday's steep plunge of interest to bargain hunters. Bolstering the argument that this stock is deeply undervalued is the fact that it was down more than 50% from its February peak even before Thursday's sell-off. All of this concerning news (and more) may have already been reflected in the stock's price.

That still doesn't make Brightcove a good fit for every investor's portfolio. But, the bullish thesis for those who were already mulling a purchase just got much stronger, as little has actually changed regarding the company's operation or prospects.

James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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