It's not often you can say about a company, "It's never missed estimates." Rarer still can you say, "It's always beaten estimates." Blackboard (NASDAQ:BBBB) is one of the precious few to which both statements apply. Since going public in June 2004, the educational-software maker has posted eight straight quarters of better-than-expected earnings. Tomorrow, it goes for No. 9.

What analysts say:

  • Buy, sell, or waffle? Six analysts still follow Blackboard, down one from last quarter. They split their ratings evenly between buy and hold.
  • Revenues. On average, analysts believe the company booked $42.2 million in revenues during Q2 2006, 28% better than last year's Q2.
  • Earnings. However, they expect a $0.23-per-share loss under generally accepted accounting principles.

What management says:
Blackboard recently thrilled investors with that happiest of news releases: the guidance bump. In June, the firm announced that its integration of new acquisition WebCT is proceeding well, added $5 million to its sales target for the year, and reduced its projected GAAP loss by $0.10. For further details on the announcement, and the actual numbers management is projecting, click on through to fellow Fool Anders Bylund's "Blackboard Boosts Guidance."

Also in June, the firm announced that it has received authorization to nearly double the size of its employee stock option program. The 4.6 million shares now authorized for distribution to employees equate to more than 16% of the current share count. Needless to say, outside shareholders weren't thrilled to hear about the anticipated dilution.

What management does:
"Reading" Blackboard's margin trends, as reflected in the table below, is a bit tricky. So let me walk you through this. Two quarters back, rolling net margin soared out of all proportion to gross and operating margin improvements. The reason is that in Q4 2005, the company took a $15 million tax credit that inflated that quarter's net and the next, and will continue to inflate the rolling net numbers for another two quarters. Rolling operating margins headed the other way last quarter, as a result of the sizeable costs recorded in association with the WebCT acquisition. Neither even should be thought of as reflecting a long-term trend, however.

Margins %

12/04

3/05

6/05

9/05

12/05

3/06

Gross

69.6

69.5

69.9

70.5

70.6

70.8

Op.

9.2

12.7

14.9

16.9

18.1

13.4

Net

9.0

12.5

15.9

18.1

30.9

25.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Up until the firm acquired WebCT, the long-term trends were looking pretty good, with each of the rolling gross, operating, and net margins rising strongly. Post-merger, we'll need to wait for all the one-time murkiness to settle out before the picture clears here. In the meantime, Fool co-founder Tom Gardner, who chose Blackboard for the Motley Fool Hidden Gems portfolio back in June 2005 (giving our subscribers the chance at 47% gains since then), sees WebCT as posing both risks and opportunity.

On the one hand, the combined company is now "positioned to dominate the marketplace for educational software." On the other, "it remains to be seen how well the integration of the two companies will proceed." Thanks to Anders' write-up of Blackboard's recent comments on said integration, we know that the risk is already abating -- whatever tomorrow's GAAP numbers might suggest.

Competitors:

  • VCampus
  • SumTotal Systems (NASDAQ:SUMT)
  • Saba Software (NASDAQ:SABA)
  • eCollege.com (NASDAQ:ECLG)

Like the idea of booking 47% gains on your stocks, in a little more than a year's time? It doesn't happen often, but when it does, we're all smiles. Meanwhile, we're content with the Hidden Gems portfolio's long-term outperformance of the broader S&P by a more modest margin of 15 percentage points. Find out how we do it with a free trial of the service -- and remember, at the Fool, "free" means free.

Fool contributor Rich Smith does not own shares of any company named above.