BCOV - Brightcove Forecasts Sluggish Growth In 2023

2023-03-28 12:50:59 ET

Summary

• Brightcove posted its Q4 and full-year 2022 financial results on February 23, 2023.
• The firm provides video streaming technologies and services worldwide.
• BCOV has produced contracting growth and worsening operating losses recently.
• Management has guided to only 1% topline revenue growth in 2023.
• I'm on Hold for the stock until we see faster growth and progress toward operating breakeven.

A Quick Take On Brightcove

Brightcove (BCOV) reported its Q4 and full-year 2022 financial results on February 23, 2023, missing quarterly revenue and EPS consensus estimates.

The company provides a range of video publishing software and related services for video production and distribution.

Management's challenge in 2023 will be to reignite revenue growth while making progress toward operating breakeven.

I'm on Hold until we see those trends actually show up in its financial results.

Brightcove Overview

Boston, Massachusetts-based Brightcove was founded in 2004 and provides organizations with a video production and distribution platform via a suite of subscription software products.

The firm is headed by Chief Executive Officer Marc DeBevoise, who was previously Chief Digital Officer at ViacomCBS and CEO of CBS Interactive.

The company's primary offerings include:

• Marketing studio

• Communications studio

• Media studio

• Audience insights

• Zencoder

• Global services

• Marketplace

The firm acquires customers through its direct sales, marketing and business development efforts as well as through partner referrals and channels.

Brightcove's Market & Competition

According to a recent market research report by MarketsAndMarkets, the global market for enterprise video applications was estimated at $16.4 billion in 2020 and is expected to reach $25.6 billion by 2025.

Video is increasingly being adopted as a communication tool by organizations due to its low cost, user-friendliness and ability to build a personal connection between users. However, the same technological advances that have made video so accessible are also rendering it more vulnerable to abuse.

This represents a forecast CAGR of 9.3% from 2020 to 2025.

The main drivers for this expected growth are a growing demand for video streaming and communicating across distributed workforces.

North America was estimated to have the largest market share in 2020 and is forecast to remain the largest market size of the major global regions.

Additional aspects of the market that may hinder or slow adoption include:

• The high cost of video production and streaming services

• The need for specialized equipment and software

• The limited bandwidth of many internet connections

• The risk of data breaches and privacy violations

Major competitive or other industry participants across all of the platform's functionalities include:

• Microsoft

• Amazon

• Twilio

• Cisco

• Zoom Communications

• Adobe

• Intrado

• Synamedia

• MediaKind

• Comcast Technology Solutions

• Kaltura

Brightcove's Recent Financial Results

• Total revenue by quarter has fallen recently:

• Gross profit margin by quarter has trended lower in recent quarters:

• Selling, G&A expenses as a percentage of total revenue by quarter have trended higher in recent reporting periods:

• Operating income by quarter has worsened further into negative territory:

• Earnings per share (Diluted) have followed a similar trajectory to that of operating income:

(All data in the above charts is GAAP)

In the past 12 months, BCOV's stock price has fallen 42.3% vs. that of Kaltura's rise of 1.6%, as the chart indicates below:

As to its Q4 2022 financial results, total revenue fell 6.5% year-over-year and gross profit margin dropped 13.8%.

The company's net retention rate was 94%, an improvement of one percentage point sequentially and year-over-year, but indicating a need for improvement in product/market fit and sales & marketing efficiency.

SG&A as a percentage of total revenue continued its upward trend, a negative signal, while operating losses worsened, as did negative earnings per share.

For the balance sheet, the firm finished the quarter with $31.9 million in cash and equivalents and no long-term debt.

Over the trailing twelve months, free cash flow was $14.7 million, of which capital expenditures accounted for $10.7 million. The company paid a hefty $13.5 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For Brightcove

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

As a reference, a relevant partial public comparable would be Kaltura (KLTR); shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha)

The Rule of 40 is a software industry rule of thumb that says that as long as the combined revenue growth rate and EBITDA percentage rate equal or exceed 40%, the firm is on an acceptable growth/EBITDA trajectory.

BCOV's most recent GAAP Rule of 40 calculation was negative (0.9%) as of Q4 2022's results, so the firm has performed poorly in this regard, per the table below:

(Source - Seeking Alpha)

Future Prospects For Brightcove

In its last earnings call (Source - Seeking Alpha), covering Q4 and full-year 2022's results, management highlighted the firm finished the full year within its previous guidance range despite foreign currency exchange challenges due to the strong US dollar.

Leadership believes that the 'big streamers' in the business will be forced to outsource parts of their technology stack to providers like Brightcove due to increasing cost pressures.

Also, the firm sees an increasing quantity of new streamers that will turn to Brightcove to increase their speed to market while lowering their cost structure.

Looking ahead to 2023, management is expecting total revenue to be $213 million at the midpoint of the range, which would represent only a 1% growth rate over 2022's results.

Adjusted EBITDA is expected to be around $17.5 million at the midpoint, but given its trailing twelve-month stock-based compensation run rate of $13.5 million, GAAP EBITDA is likely to be only $4 million or less.

Regarding valuation, the market is valuing BCOV at an EV/Sales multiple of around 0.8x.

The Meritech Capital Index of publicly-held SaaS software companies showed an average forward EV/Revenue multiple of around 6.2x on February 23, 2023, as the chart shows here:

So, by comparison, BCOV is currently valued by the market at a substantial discount to the broader Meritech Capital SaaS Index, at least as of February 23, 2023.

The primary risk to the company's outlook is a macroeconomic slowdown or recession, which may accelerate new customer discounting, produce slower sales cycles and reduce its revenue growth trajectory.

The challenge for new management in 2023 will be to reignite growth while returning the company to operating breakeven.

For now, I'm on Hold until we begin to see results show up in its financial reports.

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