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Brightcove Inc. (BCOV - Snapshot Report) reported a loss of 11 cents in the third quarter of 2012, in line with the Zacks Consensus Estimate. However, this was much better than a loss of 81 cents reported in the year-ago quarter.

Quarter Details

Revenue jumped 32.4% from the year-ago quarter to $22.1 million, meeting the consensus mark. The year-over-year surprise was primarily driven by a 35.2% surge in Subscription and support revenue, which fully offset a 26.0% plunge in Professional services and other revenue.

Gross profit (including stock-based compensation) soared 33.6% from the year-ago quarter to $15.2 million, while gross margin increased 250 basis points boosted by a favorable revenue mix.

Operating expenses soared 28.0% year over year to $18.8 million due to 19.8% year-over-year increase in research & development expenses, 26.5% year-on-year rise in sales & marketing expenses and an 18.2% jump in general & administrative expenses.

Loss from operations (including stock-based compensation) was $2.7 million, narrower than $3.3 million reported in the year-ago quarter on higher revenue base.

Net loss (including stock based compensation) of $3.0 million was narrower than the loss of $4.0 million in the prior-year quarter.

Exiting the third quarter, Brightcove had cash, cash equivalents and investments of $30.8 million, down from $58.6 million reported in the second quarter.

Outlook

For the fourth quarter, the company expects revenues in the range of $22.8 million to $23.3 million. Non-GAAP operating loss is expected to be 1.9 million to $2.2 million. Non-GAAP net loss is expected in the range of 7 cents to 8 cents.

For fiscal 2012, management expects revenue to be in the range of $86.5 million to $87.0 million. Non-GAAP operating loss is expected to be 7.5 million to $7.8 million. Non-GAAP net loss per share is expected in the range of 35 cents to 36 cents per share.

Recommendation

We believe that strong demand for cloud-based solutions, security and mobile products, and online videos along with strategic acquisitions are the positives for the stock over the long term.

However, intense competition from Akamai Technologies Inc. (AKAM - Analyst Report) and Limelight Networks, Inc. (LLNW - Snapshot Report) coupled with sluggish macro-economic environment are the near-term headwinds.

We maintain our Neutral recommendation on a long-term basis (6-12 months). Currently, Brightcove has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.

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