The company beat earnings expectations again (handily) but weak guidance pressured the stock.
The key to the weak guidance was one of our worst fears: Large customer loss.
This highlights the risk of future customer attrition despite the solid business model and relatively cheap valuation. We believe this risk is enough to warrant a change in perspective.
Shares of Brightcove (NASDAQ:BCOV) fell off a cliff last week; quite literally. The stock was down nearly 40% in a single day after its earnings release. Although the company did beat expectations on both the top and bottom lines. Q2 actually marked the eighth straight quarter the company beat earnings by 25% or more.
However, the Q3 guidance is what's spooked the market. Earnings are expected to come in at a loss of between $0.08 and $0.09, versus previous consensus of a only a $0.07 a share loss. The big news is that Brightcove is losing a large customer in Q3. European based Rovio (which accounts for just under 5% of revenues) has developed its own system and will not renew its contract in Q3.
The near 40% fall last week puts us down 50% since we profiled Brightcove back in October. Our worst case scenario effectively came true, where we noted that rising competition could really hamper Brightcove's growth. It's worth noting that more customer losses could come, as we noted, "The biggest competitor to Brightcove is Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Youtube. It allows users to upload their own videos for free."
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