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VoIP Systems

BroadSoft Bubble?

Hosted IP services platform vendor BroadSoft Inc. reported its fourth-quarter and full-year 2010 financials late Monday, with dramatic effect.

Its full-year revenues were up by 39 percent to $95.6 million and fourth-quarter revenues were up 85 percent year-on-year to a record $35.8 million. That's quite a turnaround for a company that joined the stock market with something of a damp squib in June 2010. (See BroadSoft Reports Q4.)

The positive news goes on, though. Net income in the fourth quarter was $11.2 million, representing more than 31 percent of total revenues, and the company's gross margins hit 85 percent. That gave BroadSoft an EPS (earnings per share) of $0.41.

Not surprisingly, these numbers were ahead of any analyst expectations.

And there's more. BroadSoft ended 2010 with "cash, cash equivalents and marketable securities" worth $65.9 million, and has only a few million dollars of debt, so it's not creaking under a major financial burden.

In addition, the company expects to grow further this year, with full-year revenues between $116 million and $120 million, and an EPS for 2011 of between $0.35 and $0.45.

And it's not like this growth is coming out of the blue. The IP communications system specialist also recorded growing sales in the second and third quarters of 2010, its first two reporting periods as a public company. (See BroadSoft Reports Q3 and BroadSoft Hints at Turning Market.)

Despite those reports, BroadSoft's share price hovered for most of 2010 around, and often below, its launch price of $9.00.

Not anymore. The vendor's share price started climbing in November, and soon topped $30.

Now, following Monday evening's earnings report, the company's share price has added $14.09, more than 40 percent, taking it to $48.99 and giving BroadSoft a market value of $1.22 billion.

Whoa -– $1.22 billion? That means in one day, BroadSoft, which has quarterly revenues of roughly $40 million, has seen its market value grow by $350 million. And its current share price is more than 100 times the top-end projection for its full year 2011 earnings.

Does this make sense? Is this a BroadSoft bubble? Have investors overreacted?

It's maybe not as wild as it looks. Jefferies & Co. Inc. analyst George Notter knows the market and has just raised his target price on BroadSoft's stock to $42.00 from $23.00.

Brent Bracelin at Pacific Crest Securities Inc. , meanwhile, has just raised his price target to $48.00 from $38.00. He says the shift from TDM to IP lines may be happening a bit faster than previously expected, making investors more bullish about the stock, and that BroadSoft's profit margins are meaningfully higher than anticipated. Hence the giant leap in the stock.

Now, of course, BroadSoft's management team faces a new challenge. Instead of trying to convince investors and analysts of its true worth and potential, it now has to live up to high expectations and much greater scrutiny.

And the company has been working hard to extend into new applications and markets to achieve its potential, especially in mobile (where there are many more lines to switch to IP), as the following select news releases show:

— Ray Le Maistre, International Managing Editor, Light Reading

digits 12/5/2012 | 4:57:31 PM
re: BroadSoft Bubble?

Looks like BroadSoft's valuation is starting to head into more realistic territory....


 


After topping $50 in March, the stock now stands at $29.55, hagving shed more than $10 in the past 2 weeks.


The company reports its latest earnings on August 8. There's no doubt the company has plenty of growth left in it, but the valuation of earlier this year looks to have been way out of touch with reality. 


 


 

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