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CARB - Carbonite Inc A Commodity Provider for theDigital Age Becomes a Takeover Target

By Noshee

Different eras in human civilization create demand for different kinds of rawgoods. These raw goods are usually reasonably uniform, and can be easilyreplicated across different markets and geographies. The term for goods of thisnature is a commodity. A commodity is useful, tradeable and usually in demandat a particular time.

For example, in the ancient world of Egypt and Rome, agriculture was the maincommodity. Access to a reliable water supply meant that grains, fruit andvegetable could be grown, and animals raised for food. Because everyone ate,food then became a commodity, as those without reliable sources of it were keento trade to get it, by providing labor, money or soldiers in exchange.

The industrial revolution in Europe meant that raw commodities like iron oreand coal became in demand to drive furnaces and build cities and bridges. Inrecent times, the industrialization of China has driven commodity price spikes iniron ore and coal.

However, Carbonite Inc (CARB) specializes in a completely different kind ofcommodity. Their specialization for the digital age has seen them become anacquirer of other smaller providers, while also becoming a target for larger rivals.And their stock price has responded, rising from levels below $9 as late as May2014 to recent highs much closer to $15.

Whether that range presents an opportunity to buy stock in CARB or executesome online options trading orders is the focus of this article.

Understanding the Business

Carbonite (CARB) provides cloud based storage and backup solutions to a widerange of companies. In the digital age, the newest commodity is data. With thelives of hundreds of millions of Americans, as well as their counterparts acrossthe world, transitioning online, data is being created in quantities never beforeimagined.

And despite the fact data is portable, digital and cheap to store, it still needssomewhere to live. Companies store data they collect about their operations,suppliers, contracts and customers in servers. Whether it is a giant globalcorporation or small municipal council, the requirement to securely house data isthe same.

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Carbonite provides the fail safe or backup in the event that a server fails. Thecrippling effect of losing all the information that an organization has collectedfuels the need for these back up services. In the event of fire, theft or malicioushacking activity, a company could shut down their servers and access the backups that Carbonite holds and protects on their behalf, and minimize the negative

effects.

Carbonite has developed a range of products to serve this need, from theirpersonal, pro, prime and plus solutions as well as the ability for customers toback up files with a simple drag and drop procedure.

Clients can back up files as diverse as word documents, music, photos and videos,and they can be accessed via the cloud on a web browser or using an app.

Metrics and Measures

Carbonite (CARB) is still a relatively young and small company, having been inoperation less than a decade and employing less than 500 staff. This means theyare a late stage growth company, and their most recent financial results reflectthat.

The third quarter revenue was $31.3 million, which was a modest increase of 13%on the previous result. Similarly, bookings for their cloud space rose to the valueof $30.6 million for the quarter. However, operating costs were high and notenough to offset the revenues, which meant that the quarterly reporting loss was$0.7 million.

Encouragingly, the results showed that the margins earned on products sold

expanded from an already strong 67% to 69%, indicating that the company wasselling higher value products more often. Profitability appears close for CARB, ifthey can secure several more large bookings, which could be the catalyst foroptions trades to take the opportunity for the right to buy stock before the shareprice jumps.

Cash in the bank and investments for Carbonite was also strong with $71.5million on reserve for the quarter.

The Investment Case

A range of factors influences the investment case for Carbonite (CARB). The firstof these is the nature of the company as a commodity provider. All commodityproviders compete on price and efficiency, as their services can be easilyreplicated. To gain this advantage in price, commodity providers can cut costs ortry and achieve scale so they can be more efficient and pass on those efficienciesto customers in the form of cost savings.

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This is the route that Carbonite has taken, with recent acquisitions includingMailStore, which provides email archiving services for small and medium sizedbusinesses. However, acquiring new businesses and becoming bigger and moreefficient can also mean that the hunter becomes the hunted, and presents as anattractive acquisition target themselves.

One of the first things that is acquiring when you learn options trading is thattakeover offers, especially those that surprise the market, result in sudden stockprice increases as traders buy stock. That is precisely what happened when j2Global offered $15 per share to all Carbonite shareholders for their stock.

The board, led by the new CEO, Mohamed Ali, is said to be considering theproposal and whether it represents fair value for the company. The proposal is akey new challenge for Ali, who succeeded the founder of Carbonite to take therole early last month.

With former appointments at Hewlett-Packard and Chief Strategy Officer as wellas roles at Avaya, IBM and Aspect, Ali is well credentialed and experienced in arange of corporate scenarios, which should mean he is strongly placed to makethe best decision for the company and its future and a release to the marketshould come soon.

Conclusion

Carbonite (CARB) is a provider of the fail-safes and back ups needed byorganizations of all sizes in the modern world for their critical data. Growingquickly and towards profitability has meant that the company has in turn become

a takeover target themselves for a larger player seeking to harness that growth.With a strong options trading advisory service like Financial Markets Wizard, youcan benefit from periods of corporate activity like this to buy and sell stockoptions and maximize your investment returns.