Vimeo vs. Brightcove: Which Video Software Stock is a Better Buy?

Vimeo, Inc. (VMEO) in New York City operates as a cloud-based software platform for professionals, teams, and organizations to create, collaborate, and communicate with video worldwide. Brightcove Inc. (BCOV) in Boston provides cloud-based services for video. Its flagship products include Video Cloud, an online video platform that enables its customers to publish and distribute video to Internet-connected devices.

The COVID-19 pandemic turned out to be a boon for the global video streaming software industry. Under social distancing and stay-at-home mandates, people relied on online platforms for almost every task—from entertainment to  virtual conferencing. This trend is expected to continue due to the conveniences and efficiencies afforded by a remote lifestyle. The global video streaming software market is projected to grow at a 20.4% CAGR between 2020 - 2027 to hit $19.54 billion. Thus, prominent players in this space, VMEO, and BCOV, should benefit.

VMEO has slumped  15.8% in price over the past month, while BCOV has declined  9.1%. However, VMEO has fallen  5.5% versus BCOV’s 21.3% descent over  the past three months.

But which stock is a better buy now? Let’s find out.

Latest Developments

On June 21, BCOV announced a technology partnership with ByteArk, a leading content delivery network (CDN) service provider in Thailand, to support customers looking to use video to connect with viewers worldwide . Through this partnership, the company expects to enable customers to seamlessly deliver high-quality live streaming and video-on-demand (VOD) to Thai audiences across the country. This marks a step forward in strengthening its customer base in Thailand.

VMEO began trading on NASDAQ on May 25. The company is poised to hit a  $70 billion market capitalization  by 2024.

Recent Financial Results

VMEO’s revenue increased 43% year-over-year to $96 million in its  fiscal second quarter, ended June 30. Its gross profit stood at $70.30 million, up 58% from the same period last year. Its cash flow from operating activities rose 71.8% from its year-ago value to $18.17 million.

BCOV’s revenues have increased 7.4% year-over-year to $51.47 million in its  fiscal second quarter, ended June 30. Its gross profit grew 22.2% from its year-ago value to $34.25 million, while its net income improved 167.2% year-over-year to $0.87 million. The company’s EPS improved 166.7% year-over-year to $0.02.

Expected Financial Performance

Analysts expect VMEO’s revenue to increase 38.6% in the current year and 33.3% in the next year. In addition, the company’s EPS is expected to grow 16.2% in the current year and 2.2% in the next year.

BCOV’s revenue is expected to increase 7.6% in the current year and 8.8% in the next year. And analysts expect its EPS to grow 28.6% in the next year. Moreover, BCOV’s EPS is expected to grow at a 15% rate per annum over the next five years.

Profitability

BCOV is more profitable with a net income margin and EBITDA margin of 4.47% and 7.19%, respectively, compared to VMEO’s negative 9.49% and 7.08%.

Furthermore, BCOV’s 6.99% ROTC compares with VMEO’s negative 16.6%.

Thus, BCOV is more profitable here.

Valuation

In terms of forward EV/Sales, VMEO is currently trading at 15.03x, which is 86.2% higher than BCOV, which is currently trading at 2.08x. Also, VMEO’s 16.40 trailing-12-months Price to Book ratio is 68.2% higher than BCOV’s 5.21.

Thus, BCOV is a relatively affordable stock here.

POWR Ratings

BCOV has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. VMEO, in contrast,  has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

BCOV has an A grade  for Sentiment, which is justified because each of the Wall Street analysts that rated BCOV, rated it Buy. In contrast, VMEO has a C grade for Sentiment, which is justified  because  among the six Wall Street analysts that rated VMEO, four rated it Buy, while two rated it Hold.

Of the 145 stocks in the Software - Application industry, BCOV is ranked #10. On the other hand, among the 16 stocks in the Software - SAAS industry, VMEO is ranked #10.

Beyond what we’ve stated above, we have also rated these stocks for Stability, Momentum, Quality, Value, and Growth. Click here to view BCOV ratings. Also, get all VMEO ratings here.

Click here to check out our Software Industry Report for 2021

The Winner

The growing demand for cloud-based and on-demand video streaming services is the primary factor driving the growth of the video streaming software industry. As a result, companies with significant market share in the industry should benefit substantially. However, we think that with higher profitability and favorable analyst sentiment, BCOV is a better buy here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Software - Application industry here. Also, here to view the top-rated stocks in the Software - SAAS industry.

VMEO shares were unchanged in after-hours trading Monday. Year-to-date, VMEO has declined -30.75%, versus a 21.75% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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