Brightcove (BCOV) is a Software as a Service (SAAS) business trading well below traditional SaaS multiples. The company, which supplies video hosting and analytics services to its customers, is a turnaround situation with a strong new management team and strategy. With a $775 million market cap and $25 million in net cash, its stock trades at an enterprise value to revenue ratio of 3.4x on 2021E revenue, well below the 8x to 15x of SaaS peers growing at mid-teens revenue growth rates with similar gross margins. I believe the discount arises from the perception that Brightcove is not truly a SaaS business with recurring revenue from its customers over a long period of time. It has historically served smaller businesses which can be transitory based on their own success. The company’s dollar based net retention rate, a metric that is scrutinized in SaaS companies, dipped to 80% in the June quarter as many of the company’s small customers failed due to Covid-19 issues. In addition to the troubles at its smaller customers, one of Brightcove’s large media customers also failed in the June quarter, adding to the pressure on this metric. I believe that Brightcove’s 2nd quarter retention issues were temporary, and not indicative of the company’s underlying business strength. Retention was an issue that plagued many technology companies that catered to the small and medium sized business (SMB) base early this year. The company’s 3rd quarter dollar based net retention rate metric, at 101%, showed much improvement which should solidify next year with the new management team’s focus on customer retention.
Brightcove sells to two customer segments, media and enterprise. Media companies use Brightcove to broadcast their content to their subscriber bases. Enterprise customers use Brightcove to direct video content to either their own employees or their customers, or both. During Covid-19 with in-person
