Remember WordPerfect and Quattro Pro? It's OK if you don't. Corel (NASDAQ:CREL) isn't all about those tools anymore, but the company will tell us about the wind at its back soon.

What analysts say:

  • Buy, sell, or waffle? Briefing.com's analyst survey finds seven Wall Street firms covering this stock. Five of them carry a buy rating on it, and the other two are holding.
  • Revenues. Management tells us to expect between $61 million and $61.5 million this time, and the Thomson First Call analyst consensus lands at $61.2 million. That would be 48% more than the $41.3 million in sales seen last year.
  • Earnings. $0.30 per share would satisfy the average analyst, smack in the middle of the official non-GAAP guidance range from $0.27 to $0.33 per share.

What management says:
"We are realizing many of the anticipated benefits from the acquisition of InterVideo and Ulead," said CEO David Dobson in the latest earnings release. That acquisition, announced in August of last year and closed in December, doubled Corel's portfolio of photo editing software from three packages to six. It also brought in seven video editing tools, which was a new market area for Corel, and the list goes on and on.

Talk about a significant acquisition -- Corel moved virtually overnight from a WordPerfect dinosaur with CorelDraw accessories to a serious new-media presence in the backyard of Avid (NASDAQ:AVID), Apple (NASDAQ:AAPL), or Adobe (NASDAQ:ADBE).

What management does:
As you might expect, then, revenues have picked up dramatically since that deal closed, with almost all of the growth happening in the digital media segment. Profitability has been unpredictable of late, but Corel's cash flows have always remained strong. Perhaps the relatively weaker earnings are a testament to the tax-minimizing skills of the company's accountants more than anything else.

Margins

2/2006

5/2006

8/2006

11/2006

2/2007

5/2007

Gross

88.2%

87.9%

87.5%

87.3%

86.1%

83.2%

Operating

12.7%

14.4%

17.4%

19.9%

16.0%

13.3%

Net

(4.7%)

(7.0%)

(2.0%)

5.2%

(0.5%)

2.6%

FCF/Revenue

21.0%

21.1%

21.2%

19.4%

25.4%

16.5%

Y-O-Y Growth

2/2006

5/2006

8/2006

11/2006

2/2007

5/2007

Revenue

10.80%

10.50%

7.20%

4.10%

18.80%

47.10%

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:
Corel is on the right track here. Its acquisition strategy shows some moxie, and its selections prove that the company understands what drives the software market these days. Let Google (NASDAQ:GOOG) try to fight Microsoft (NASDAQ:MSFT) in the word processing and spreadsheet arena if it wants -- Corel has some new fish to fry, and it's all in digital video.

Corel has beaten the Street estimates for at least four quarters in a row, and seems content to stay conservative in its guidance. Anything but a big upside, then, would be a disappointment this time, and the current stock price accounts for those lofty expectations. Good luck, Corel.

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Fool contributor Anders Bylund is a Google shareholder but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is the prognosticator of prognosticators.