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Kit Digital (OTC:KITD) is a software company that enables the distribution of streaming video content online. The company helps its customers monetize video content on the Internet through subscription models, advertising revenue, video-on-demand, and by providing access to live video feeds.

Rumors late yesterday that Google (NASDAQ:GOOG) was in talks to buy KITD's number one peer Brightcove should bring a lot of attention to KITD. According to reports, the deal being discussed is for $500-700 million or 6-9x revenues. By comparison, KITD trades at just north of 1x revenues. Thus a similar multiple on KITD's trailing revenues would value the company at $30-40 per share versus its current price of about $7.50. Earlier this year, GOOG anounced a deal to purchase a smaller video peer On2 Technologies (ONT) in a deal valued at 6.0x trailing revenues, so the reports are certainly plausible.

About KITD

Kit Digital has over 9,600 hours of archived video content that its customers can place on their websites. In addition, the number of Intemet users watching videos has more than tripled since 2006 and now includes over 80% of all Internet users worldwide. Kit Digital expects to earn over $40 million in revenue in 2009 with an EBITDA margin in excess of 10%. I believe that as the company expands its business model across additional clients, the inherent operating leverage of its software platform will generate EBITDA margins that exceed 25% and organic revenues could approach $65-70 million in 2010. Interestingly, over 90% of KITD's revenues come from outside of the U.S., where growth has been strongest. This also makes KITD a prized acquisition target.

KITD just raised about $25 million in August through Roth and Maxim to consolidate the online video space. Like many acquisitions in the software space, these acquisitions should be very accretive as headcount and overhead are rationalized and products are cross-sold across an expanded customer set. Making several assumptions about future acquisitions which could be announced at any point, I believe KITD trades currently at approximately 4x 2010 EBITDA with a growth rate approaching 50% organic. Clearly this valuation discrepancy won't exist long. The recently NASDAQ listed company should be receiving increased sell side coverage shortly from at least the 2 firms that helped them raise capital in the recent offering. Additionally, the overnight Brightcove news should put them into play effectively.

Do you think MSFT or YHOO is going to watch while GOOG dominates online video? Or perhaps Akamai (NASDAQ:AKAM), with whom KITD has announced strategic partnership, will be spurred to pick up KITD on the cheap. Many ways to win on this one - great management team, high recurring revenune business model, acquisitions in the space. Check out KITD.

Disclosure: Long KITD

Source: Kit Digital: In Play After Google Rumored to Buy Brightcove