Polycom Benefits From Rising Travel Costs

Last week, Polycom, a leading telepresence and video conferencing solutions provider, was featured in my list of Seven Tech Stocks for Long-Term Hold. Last month, it was also featured in my Forbes column, Kill the Business Trip.

In a recent study, Gartner expects telepresence to generate $600 million in annual equipment revenue and $1.5 billion in revenue including services by 2010. In addition, in an IT budget priority survey for enterprises, collaboration moved up two slots to number eight. My earlier post on Polycom as an online video beneficiary is available here, and my interview with Bob Hagerty, CEO, is available here.

On Wednesday, Polycom, Inc. (NASDAQ: PLCM) reported its second quarter results, which beat revenue estimates but missed earnings estimates by one cent. Revenue grew 16% y-o-y and 5% q-o-q to $271.6 million. Net income grew 77% to $17.8 million or $0.20 EPS, versus $10.1 million or $0.11 EPS last year. Non-GAAP net income was $30.7 million, or $0.35 per diluted share. Wall Street expected profits of $0.36 per share on revenue of $265.5 million. Polycom repurchased shares worth $80 million and is left with $300 million in its current repurchase authorization.

By product, Video Solutions continued to account for 62% of revenue at $169.2 million, up 17% y-o-y and 6% q-o-q. Of this, Video Communications revenue grew 25% y-o-y and 8% q-o-q to $130.3 million, driven by strong telepresence and HD video offerings. However, Network Systems revenue declined 10% y-o-y and 4% q-o-q to $28 million due to low voice networking revenues and the product transition to Polycom’s new RMX platform.

Voice Communications revenue was $102.4 million, up 14% y-o-y and 3% q-o-q driven by leading voice over IP solutions.

By region, North America revenues were up 7% y-o-y, Europe grew by 36% y-o-y, Asia by 20% y-o-y, and Latin America by 36% y-o-y.

Polycom expects its telepresence and HD video business to continue to benefit from the increasing cost of travel, particularly in the economic slowdown. It is also increasing its marketing and R&D spending to reap benefits from the trend. Further, the new RMX line is also expected to return Network Systems to growth. For the third quarter, Polycom expects revenue to increase 3% q-o-q.

Polycom is currently trading around $24, recovering from its 52-week low of $19.47 on March 17. Its market cap is around $2 billion.

Disclosure: None

Comments

[BelvedereResearch]

I couldn't agree more about PLCM as a solid medium to long term tech play. The products (including telepresence) are rock solid, the segment is one which can benefit from either a strengthening of the economy or a weakening, and the valuation at current price levels offers a great risk/reward proposition.

My only question about PLCM relates to the investor relations of mgmt. This was the first webcast that I watched in its entirety and there was something "off" about the flow of the call, maybe the marginal video quality, or maybe the rah-rah spinning of all responses. Did you/anyone else walk away with this sense?

Still, I'm long PLCM and think the story is too good to pass up