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Corel Gets Some Mojo

By Tom Taulli – Updated Nov 15, 2016 at 5:40PM

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The low-cost provider adds new product lines to enhance growth.

Even for a company the size of Google (NASDAQ:GOOG), it is still tough to compete with Microsoft's (NASDAQ:MSFT) Office Suite. Yet Corel (NASDAQ:CREL) has been fighting the Redmond giant for several decades. In fact, another of Corel's formidable competitors is Adobe (NASDAQ:ADBE), which is a dominant player in graphics software. Despite all this, Corel has been able to get some traction as it buys up a variety of small software companies -- as evidenced by its third-quarter earnings report.

In the quarter, Corel's revenues increased 7% to $41.3 million. During this time, the company posted a profit of $5.5 million, or $0.22 per share, which compares to a loss of $3 million, or $0.15 per share, in the same period a year ago. On the news, the stock surged 13% Friday, to $12.87.

Over the years, the company has built a solid platform. There are roughly 40 million customers and distribution across 75 countries. Dell (NASDAQ:DELL) and HP (NYSE:HPQ) are just a few of its 70 OEM (original equipment manufacturer) customers. The company also has more than 25,000 relationships with resellers and retailers.

Obviously, such distribution takes time to develop. So, why not monetize it with acquisitions? That has certainly been the case with Corel, whose acquisitions include Paint Shop Pro and WinZip.

However, the biggest deal was the $196 million purchase of InterVideo, which develops multimedia software that helps with the editing and distribution of digital content on PCs and mobile devices. One of its products, WinDVD, has 175 million installations. Moreover, the company has extensive distribution in Asian markets such as China, Taiwan, and Japan.

With the surge in popularity of online video -- as seen with YouTube and offerings from Microsoft, Google, and Yahoo! (NASDAQ:YHOO) -- there will definitely be a need for video editing tools. In other words, InterVideo has the potential to be a growth driver for Corel.

In fact, Corel increased its full-year guidance, and now expects revenues of $175.8 million to $177.8 million, which is up from the prior guidance of $172 million to $175 million. Net income is expected to range from $0.28 to $0.33 per share, which compares to the previous guidance of $0.20 to $0.30 per share.

Corel's strategy is fairly straightforward: provide low-cost software across its huge distribution system. And, by purchasing companies, it can continue to add new product lines to enhance growth. It's a risky strategy -- and involves layering debt on the balance sheet -- but it finally appears to be getting some success.

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Microsoft and Dell are Inside Value selections. Yahoo! is a Stock Advisor pick.

Fool contributor Tom Taulli does not own shares mentioned in this article. The Fool has a disclosure policy.

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