Brightcove (NASDAQ:BCOV) is a company that provides video platforms for businesses to communicate internally and externally. The company enjoyed a massive tailwind during the pandemic as a lot of companies are forced to adopt the “work from home” model which significantly increased the usage of video. Its share prices also skyrocketed from $6.16 in March 2020 to $24.43 in February 2021. However, as the pandemic wanes and employees are going back to the office, the company is struggling to continue its growth. Its share price plummeted almost 70% from $24.43 last year to $6.85 at the current moment. Despite the large drop, the company is still a Sell in my opinion. Revenue is decreasing, customer retention rates are low, and it is also facing strong competition from companies like Vimeo (VMEO) and Zoom (ZM). The management team mentioned that they are trying to turn the business around but so far nothing seems to be improving.
Brightcove is a SaaS (subscription as a service) video company founded in 2004 by Jeremy Allaire. The company provides video technology solutions for different businesses to help them reach their audience through its platform. Its use cases include broadcasting, publishing, marketing, and enterprise communications. The popularity of video has skyrocketed thanks to the pandemic and video has become one of the most efficient ways for people to interact with one another. Brightcove offers businesses different video solutions through products such as Video Cloud, Live, and Virtual Events.
Brightcove’s Video Cloud delivers the video content across different screens the target audiences use. It is an all-in-one platform with different tools for monetization, marketing, live streaming, encoding, analytics, and more. Video cloud includes a lot of features such as
- Video engagement: allow companies to save, sort, and search your entire video library and it also includes functionality like editing and drag and drops
- Video analytics: allow companies to track analytics across different devices destinations, and geographic locations to gain more insight into their audience’s interests and behaviors
- Monetization: help companies monetize revenue by using ad integrations and also help place ads based on video content, duration, and user behavior to target specific audiences
- Video delivery: deliver business content safely and at high quality by working with different CDNs
Brightcove’s Live helps companies host live streaming virtually. It is able to deliver full-featured live streams at scale. It is optimized for performance and quality across multiple devices and platforms with its cloud architecture to ensure audiences are able to attend the live event smoothly. It also helps companies combine live videos with ad-supported content that allows them to monetize through the stream. It also enables companies to publish their lives on social media to increase engagement from audiences.
Brightcove Virtual Events is an easy-to-use product dedicated to businesses for hosting events. It is ideal for mid-sized, self-service events for enterprises and brands. Use cases include sporting events, concerts, sales meetings, product launches, panel discussions, conference calls, and more. The product offers live streaming, attendees networking, interactive calls, agenda building, virtual exhibits, sponsor engagement, zoom, teams integration, and more.
The company is facing strong competition from companies like Vimeo and Zoom. One of the reasons Brightcove is struggling to grow is due to the lack of competitive advantage and product differentiation. All of its products are very standard and therefore fail to give it a competitive edge when compared to its peers. Zoom is a company that focuses mainly on video conferencing, but it has also started to offer solutions like Zoom Webinar and Zoom events which compete with Brightcove’s virtual events. They are seeing strong success as they are able to convert its large existing customer base into using these new products. Vimeo, another video company, is leading Brightcove in the product end. It offers everything that Brightcove does plus exclusive features. Vimeo is landing multiple blue-chip customers such as Meta (FB), Shopify (SHOP), TikTok, and more. Similar to Brightcove, Vimeo’s growth has slowed down as the pandemic wanes. However, it is actively seeking ways to improve its product offerings and re-accelerate growth.
Last November, it acquired Wirewax and Wibbitz. Wirewax allows users to create interactive and immersive commerce videos, while Wibbitz allows users to create short-form videos online in minutes with no experience required. It gives Vimeo’s platform a strong competitive advantage as Brightcove’s platform doesn’t have these features. Besides, companies like Zoom and Vimeo are also larger with much stronger cash positions. Zoom for example has $4 billion in cash at the moment. This allows them to continue investing heavily in R&D which strengthens their market position. This resulted in Brightcove slowly losing customers as competitors are able to offer better products and I believe this trend will continue.
The company’s financials are disastrous. For the first quarter of FY22, the company reported revenue of $53.4 million, a decrease of 3% compared to $54.8 million for the first quarter of FY21. Subscription and support revenue was $51.6 million, an increase of 2% compared to $50.8 million a year ago. Gross profit decreased from $35.6 million to $34.4 million YoY with gross margin decreasing from 66% to 64%. Net loss was $1.6 million, or a loss of $0.04 per diluted share, compared to a net income of $5.1 million, or $0.12 per diluted share, for the first quarter of FY21. Operating cash flow and free cash flow remains negative at $(690,000) and $(5.5) million respectively. The company ended the quarter with $26.7 million in cash and $24.87 million in debt.
This represents a significant slowdown in growth and profitability. In the first quarter of FY21, the company posted revenue growth of 18% and gross profit growth of 27%, compared to revenue and gross profit decrease of 3% this year. It also failed to post a profit with a net income of negative $(1.6) million this year. More problem appears if we dig deeper. The company ended the quarter with 3,131 customers, down from 3,312 a year ago. While the average annual subscription revenue per premium customer (ARPU) was $96,521 in the first quarter of 2022, down from $97,039 in 2021. The recurring dollar retention rate was 91%. This is very worrying as it means the number of customers is decreasing while existing customers are also spending less.
The management team is trying to turn the company around and reaccelerate growth. In February, the company acquired Wicket Labs, an audience insights company that gives users visibility into content and subscriber analytics. This acquisition aims to improve its product’s capabilities and give the company better pricing power. The management team also said that they are focusing on growing ARPU. However, the result remains disappointing with ARPU and revenue continues to decrease this quarter.
Rob Noreck, CFO, on customer count and ARPU during Q3 2021 earnings call
we continue to drive stronger customers and the ability to grow our customers. So you see that growth happening on the ARPU side. Again, customer count is not something we focused on. We understand that it’s critical over time to get that number moving in the right direction, but we’re really focused on maximizing dollars in share of wallet from our existing customers and from those customers that do come on.
Brightcove is currently trading at an FY22 price to sales ratio of 1.36. As a SaaS company, the valuation is very compressed. From the chart below, it is shown that the company is trading at a significant discount compared to similar companies. Vimeo, the cheapest company out of the bunch, is trading at a 180% premium compared to Brightcove. However, this is largely due to its lack of growth and weak profitability. The company remains unprofitable and cash flow negative in the latest quarter with revenue deteriorating. From the second graph, it is shown that the other three companies are able to post a nice revenue growth despite facing re-opening headwinds while Brightcove failed to deliver any growth. Even though it is trading at a significant discount compared to its peers, I still don’t believe the company’s valuation is justified when we factor in growth rates, margins, profitability, and prospect.
Brightcove is in a really tough spot right now. The company had a nice run in 2020 thanks to the pandemic but had lost its direction as the tailwind starts to wane off. It failed to provide any differentiated product to improve its competitive advantage which resulted in having a very weak moat. Companies like Vimeo and Zoom are now offering similar products with additional features that Brightcove can’t offer, and they are successfully grabbing market share from Brightcove. Its financial result in the recent quarter is very disappointing with revenue growth, gross profit, and net income all decreasing. Important KPIs (key performance indicator) also indicate that the company’s fundamentals are weakening as customer count and ARPU decreases at the same time. Despite the company’s management team trying to turn the ship around, the results seem to remain very underwhelming.
The company is now trading at a steep discount compared to its peers if we value it using a price to sales ratio. However, it is also very important to factor in growth rates and future prospects other than just looking at a number. The company’s financials remain very weak with revenue decelerating and profitability weakening, the business is also facing strong headwinds from re-opening trends and competitors grabbing its market share. The company is now in a very tough situation and I believe the company is a sell at its current price.