Blackboard (Nasdaq: BBBB) reports its Q4 and full-year 2007 results today, attempting to post its third straight quarter of positive GAAP profits and its fourth straight quarter of pro forma profit. Will the company end the year with a clean sweep?

What analysts say:

  • Buy, sell, or waffle? Eleven analysts read the Blackboard. Buy ratings barely edge out holds, 6-5.
  • Revenue. On average, Wall Street expects to see quarterly sales rise 22% to $62.6 million.
  • Earnings. Profits are predicted to reach $0.24 per share (pro forma).

What management says:
Big news out of Blackboard last month: On Jan. 14, management announced a diversification into "mass messaging and notifications solutions for educational and government organizations" through a $182 million (perhaps $199 million) purchase of NTI Group. With the memory of the Virginia Tech tragedy still fresh on everyone's minds, a move like this makes real sense for Blackboard. It will be able to leverage existing relationships with its school clients to sell systems that can quickly warn student bodies when dangerous situations develop. The deal closed on Jan. 31, 2008. 

Blackboard updated its earnings guidance in light of the new purchase. Unsurprisingly, the analysts' Q4 estimates listed above basically parrot what Blackboard told us about the pro forma (Latin for "Are we really earning a profit?") numbers. GAAP-wise, the company expects to earn about $0.12 per share. Looking past the Q4 numbers, we see Blackboard predicting that it will book between $278 million and $284 million in revenue in 2008. 

What management does:
Paying for the NTI purchase could do some damage to Blackboard's margins, which only recently returned to the black on a trailing-12-month basis. It's also going to hurt the per-share numbers materially. About 28% of the purchase price was paid in stock, diluting existing shareholders by about 5%.

Margins

6/06

9/06

12/06

3/07

6/07

9/07

Gross

69.7%

69.0%

69.6%

70.2%

71.6%

72.7%

Operating

3.4%

(2.7%)

(4.6%)

(2.3%)

4.3%

7.2%

Net

15.8%

7.3%

(5.9%)

(4.5%)

0.4%

3.9%

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:
Big-picture time, folks. Whatever the NTI purchase does to Blackboard's margins, and however much it dilutes earnings (the damage should be about half a penny today), I think it tells us something about the business beyond what the numbers say. Blackboard is evolving into a near monopolist in the educational software space. No longer content with just homework assignments and test scores, class schedules and syllabi, Blackboard is showing us that it intends to be "all things to all students."

True, other companies compete with Blackboard to one extent or another -- but none all at once. You can find certain lectures posted on Google's (Nasdaq: GOOG) YouTube. Microsoft's (Nasdaq: MSFT) investment in Facebook may suggest interest in students' social lives. And Oracle (Nasdaq: ORCL) helps to power the communication networks at some universities. But no one has Blackboard's single-minded focus on educational software, nor its market dominance in this niche.

Long story short, I think we're looking at a nascent monopoly player here, one selling for a very attractive 26 times trailing free cash flow, and expected to grow at about 25% per year over the next half decade.

But does the Motley Fool Hidden Gems team agree? After all, they recommended the stock in the first place. Find out whether they still consider this one the teacher's pet when you take a free trial.

Fool contributor Rich Smith does not own shares of any company named above. Yet. Blackboard is a Hidden Gems recommendation. Microsoft is an Inside Value recommendation. The Motley Fool has a disclosure policy.