Clearly, I'm still optimistic about Blackboard, but why did I buy now? I am terrible at timing the market, but when stocks decline to attractive levels for no business-related reason I get the itch to fill out my positions. I wrote a week ago that BBBB was almost a buy for me, and it's down about 10% from that point. That's enough for another nibble.
Today, it was a toss-up between Blackboard and Cemex (NYSE:CX) as to which would get my next purchase. Blackboard won because I am more confident that the shares will recover within the next few months as next year's improved outlook starts to impact the market's valuation, whereas Cemex seems to be getting pummeled both as a Mexican stock and as a resource and infrastructure company. I wouldn't be surprised to see it dip further just because of the sector it's in and that would create some wonderful opportunity for a dominant cement company that is taking advantage of the worldwide commercial, infrastructure expansion and a US cement shortage. I may well buy as this decline continues.
But back to Blackboard. This company is in a growing sector that I really like, education, and is a long way from fully addressing its market. They have a lot of potential growth ahead of them, and there are two key factors that I think are significant:
● College and university faculties are getting older, and there is going to be a significant retirement boom as the baby boomers age. Assuming they can afford to, they will ease off into retirement, just as we're in the midst of another fairly large generation's college years. This means that not only is there going to be a shortage of teachers in some areas, but also that the next generation of younger teachers will be more tech-savvy and more comfortable with (and probably reliant on) software tools that make managing large classes more palatable.
Blackboard is the market leader in course management software. Larger classes and younger teachers both make the path to BBBB's software more appealing for universities.
● Colleges and universities are routinely squeezed by budget problems. While that may seem to be a problem for a company that relies on contracts with these entities, in truth, Blackboard's products are generally designed to bring efficiency to college and university management. Not only in course management software, but also in student accounts and all the other IT infrastructure that keeps a college running smoothly.
The efficiencies that the microcomputer revolution brought to businesses and allowed for our past 20 years of productivity gains are likely to be translated more and more to the academic environment as accountability, metrics, and assessment are the watchwords of the new guardians of the academic purse. That's good news, in my opinion, for software providers that can help colleges the way Microsoft, Oracle, and others have helped grow productivity in the corporate space.
This is a sector where being the first mover is a huge advantage -- once 5,000 faculty members are trained and online using one kind of software at a big university, there will be massive reluctance to changing that software. With ownership of the two primary commercial course management software systems in Blackboard and WebCT, BBBB has a tremendous tailwind as it fights off any other competitor. No one can match their customer base, and it's extremely hard to convert customers from one system to another.
And that customer base, newly doubled with the WebCT expansion, also gives them inroads for their infrastructure suite of products. As more and more colleges manage their courses online, complementary and upgraded software becomes key. Increased course capacity (especially with the legacy WebCT folks, who spent less money than average Blackboard customers) as well as student account management, campus-wide transaction and card systems, and other software that can easily interact with the course management system will be a snap to sell.
There is competition, and there is always fear of strong competition coming from one of the big guys like Siebel, Microsoft, Oracle or others . However, with first-mover advantage and a near-monopoly at the moment I'm not particularly afraid of even the biggest competitor right now. This is Blackboard's market to lose.
BBBB 1-yr chart: