Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Brightcove (BCOV -2.76%), which provides cloud-sharing services for video, rose as much as 15% on Friday morning after fourth-quarter results and forward guidance for 2015 surpassed analysts' expectations. By 3:45 p.m., the stock was up about 10.5% from the previous day's close.
So what: Beating expectations creates momentum and, as the following table demonstrates, Brightcove was able to do just that -- with regard to earnings per share, in any case:
|
Consensus Estimate |
Achieved/ Guidance, midpoint | |
|---|---|---|
|
Q4 2014 EPS |
($0.08) |
($0.05) |
|
Q1 2015 EPS |
($0.05) |
($0.045) |
|
FY2015 EPS |
($0.12) |
($0.105) |
Although Brightcove lost customers in the fourth quarter relative to the September-ended quarter, its dollar retention rate was higher, at 101%, up from 86% and above the low- to-mid-90s guidance it had provided. In explaining the increase, management pointed to "strong upsell activity in the quarter, particularly in the media segment."
Crucially, premium customers increased to 1,863 (up just 1%). Year on year, revenues rose 5%, to $31.4 million, which was ahead of the $30.5 million consensus estimate.
Now what: Beating expectations may be good for a quick "pop" in the stock, but the ability to generate a durable stream of cash flow is what drives value creation. During its earnings conference call, CEO David Mendels said the company continues "to expect returning to non-GAAP [Generally Accepted Accounting Principles] operating income profitability in the fourth quarter of this year."
It's worth pointing out that Brightcove has not had a profitable year on a GAAP basis in at least six years. It's not clear that the company will ever achieve the scale to generate a GAAP profit, let alone an economic profit -- i.e. a return above its cost of capital. Bear in mind the risk Brightcove laid out in its 2012 offering prospectus:
We compete with video-sharing sites such as YouTube, in-house solutions and other online video platforms. Some of our actual and potential competitors may enjoy competitive advantages over us...
Investors should consider Brightcove a speculative venture, not an investment.
