IPO Preview: Brightcove

| About: Brightcove (BCOV)

Based in Cambridge, Massachusetts, Brightcove (proposed BCOV) scheduled a $55 million IPO with a market capitalization of $290 million at a price range mid-point of $11 for Friday, February 17, 2012.

BCOV is one three IPOs scheduled for this week (see our IPO calendar).

BCOV provides an on-demand online video platform called Video Cloud for businesses. BCOV maintains it is the market pioneer and leader as of now.

Sales for the year ended December 2011 vs 2010 were up 45% to $64 million from $45 million, and losses held even at $18 million.

We're wondering how BCOV can be the "market leader" with only $64 million in revenue for the 2011 year. Either its market definition is tightly defined too small or it is assuming the market is entirely fragmented or something appears to be wrong with its business model, based on its loss rate.

In the 'competition' section BCOV conveniently 'forgot' to mention potential competitors by name, perhaps because their names might be Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG), see 'competition' below. Other competitors in the same very approximate space might include Akami (NASDAQ:AKAM), Limelight (NASDAQ:LLNW), Kit digital (OTC:KITD) and Rackspace Hosting (NYSE:RAX).

While BCOV may have been the 'pioneer' in the field, it looks like it is about to encounter big player competition, especially if the overall market is as big as BCOV suggests. We are not optimistic about BCOV's chances of getting to profit breakeven very soon.

In order to feel comfortable with BCOV we need to see better progress toward income statement break even, at least. BCOV, however, may get an initial 'pop' because it is 'cloud' oriented. 'Cloud' IPOs seem to be attracting investor interest like social networking stocks did in 2011.

BCOV generates subscription and support revenue from the sale of an on-demand online video platform called Video Cloud. Video Cloud allows customers to publish and distribute video and other professional digital media across Internet-connected devices.

BCOV believes it is the recognized online video platform market leader. In 2011, BCOV's customers used Video Cloud to deliver an average of approximately 743 million video streams per month, which BCOV believes is more video streams per month than any other professional solution.

In December 2011, BCOV's customers used Video Cloud to reach over 177 million unique viewers on over 94,000 websites.

BCOV maintains it pioneered the commercialization of online video platforms beginning with its first customer deployment in 2006, and has consistently released new features and functionality.

Enterprise & Pro
The first product line comprises premium product editions: Enterprise and Pro. The Enterprise edition provides additional features and functionality such as a multi-account environment with consolidated billing, IP address filtering, the ability to produce live events with DVR functionality and advanced upload acceleration of content.

Customer arrangements are typically one-year contracts, which include a subscription to BCOV's platform, basic support and a pre-determined amount of bandwidth. BCOV also offers gold support to its premium customers for an additional fee, which includes extended phone support. The pricing for the premium editions is based on the number of users, accounts and usage, which includes video streams, bandwidth and managed content.

Small l& Medium-Sized Businesses
The second product line is the Express edition, which targets small and medium-sized businesses, or SMBs. The Express edition provides customers with the same basic functionality that is offered in BCOV's premium product editions but has been designed for customers who have lower usage requirements and do not typically seek advanced features and functionality. Customers who purchase the Express edition generally enter into month-to-month agreements.

Express customers are generally billed on a monthly basis and pay via a credit card, or they are billed annually in advance.

During 2010, the number of customers increased 185%, and during 2011, the number of customers increased 57%. Most of the increase was a result of 2010 being the first full year in which BCOV offered the Express edition of Video Cloud, which was introduced in November of 2009. During these periods, BCOV experienced an increase in revenue from Video Cloud, which made up substantially all revenue through December 31, 2011.

As of December 31, 2011, BCOV had 3,872 customers, of which 2,571 used the Express edition of Video Cloud and 1,301 used premium editions of Video Cloud.

In the year ended December 31, 2011, the average number of monthly streams was approximately 743 million, which represents 56% growth over the year ended December 31, 2010, reflecting increased viewership of BCOV's customers' video content.

In the year ended December 31, 2010, the recurring dollar retention rate was 88% compared with 93% for the year ended December 31, 2011. This recurring dollar retention rate provides visibility into BCOV's ongoing revenue. BCOV did not calculate recurring dollar retention rate prior to December 31, 2009, in part because there were no renewals of Express customers prior to that date.

BCOV's backlog consists of the total future value of committed customer contracts, whether billed or unbilled.

As of December 31, 2011, BCOV had a backlog of approximately $43 million compared with a backlog of approximately $28 million as of December 31, 2010.

Of the $43 million in backlog as of December 31, 2011, $37 to $39 million is expected to be recognized as revenue during the fiscal year ended December 31, 2012.

In April 2011, BCOV was issued a U.S. patent covering aspects of publishing and distributing digital media online. Our latest innovation is the development and introduction of App Cloud.

Unlike most IPOs, BCOV doesn't name its competitors, which we take as negative because they know who there competitors are.

This is all BCOV says about its competitors, "We will likely encounter significant, growing competition in our business from many sources, including portals and digital media retailers, search engines, social networking and consumer-sharing services companies, broadband media distribution platforms, technology suppliers, direct broadcast satellite television service companies and digital and traditional cable systems."

Perhaps the reason BCOV 'forgot' to mention their competitors is because it's highly likely competitors will include Google and Apple .

  • Google Drive cloud storage coming 'soon', February 10, 2012 read
  • Apple prepping cloud-based movie streaming, October 13, 2011 read

Other companies in the same general space, broadly defined, include Akami , Limelight , Kit digital and Rackspace Hosting

Post-IPO this offering the two largest stockholders, Accel Partners and General Catalyst Partners will beneficially own 42.7% of BCOV's outstanding common stock.

BCOV expects to net $48 million, allocated as follows:
$7 million to repay debt, balance for working capital.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.