InterCloud Continues to Grow Through Smart Acquisitions


Although the stock market had a shaky start to 2014, it appears that things are back on track. Looking ahead, investors may want to stick with the technology sector, which appears to be as strong as ever. Specifically, companies focused on cloud services are performing extremely well. One cloud-focused company that has had one of the strongest performances over the past three months is InterCloud Systems (NASDAQ:ICLD).

InterCloud Systems is a “cloud integrator,” providing end-to-end IT and next-generation network solutions to the service provider and corporate enterprise markets through cloud platforms and professional services. The company offers cloud and managed services, professional consulting services, and voice, data, and optical solutions to assist its customers in meeting their changing technology demands.

Although some companies have cloud capabilities, very few also offer professional services like InterCloud does. That is a key differentiator that allows rapid deployment of cloud services and applications globally. This differentiator is also a key reason why InterCloud Systems is poised to become a leader in the space.

Since reaching a 52-week low of $2.20 in November, InterCloud shares have rallied by more than 500 percent. This strong performance can be attributed to several reasons, including:

  • Attractive valuation
  • Record earnings growth
  • Acquisitions

Over the past 12 months, InterCloud Systems has announced several promising acquisitions that have helped to not only grow the company’s revenue but also helped improve the company’s capabilities. The most recent acquisition was announced on February 3: InterCloud acquired RentVM because of its unique ability to help customers quickly migrate to and adopt cloud-based services.

RentVM provides end-to-end IT services, including cloud multi-zone architecture, which supports cloud deployment both on the East Coast and the West Coast. RentVM’s capabilities also allow customers to utilize a vast array of applications. The more applications that InterCloud’s customers use, the higher the revenue production will be. These advantages should prove extremely beneficial over the coming years as InterCloud continues to expand its reach.

In addition to the above advantages, RentVM will also provide InterCloud with the following capabilities:

  • Key data center: Can support both private and public cloud. Private cloud services will be accessible by every address in North America.
  • Open source application: Cost-effective option for enterprise customers.
  • Custom-built infrastructure: Some customers can be more sophisticated and complex in their needs. RentVM will be able to build an infrastructure tailored to meet the needs of even the most demanding customers.

The RentVM acquisition represents another promising opportunity for future revenue generation. Because of acquisitions like this, InterCloud Systems has been able to boost its revenue and income. Over the last four quarters, InterCloud Systems has generated the following earnings:

  • Quarter ended December 31, 2012: $11.36 million
  • Quarter ended March 31, 2013: $12.40 million
  • Quarter ended June 30, 2013: $14.36 million
  • Quarter ended September 30, 2013: $16.16 million

The growth in revenue represents an average quarter-over-quarter increase of approximately 12.5 percent. Investors should also be aware that InterCloud Systems generated a record $1.465 million in net income for the most recent quarter, ended September 30.

InterCloud’s potential can be seen through contracts like the one announced at the end of January with the Brooklyn Hospital Center. InterCloud will be able to provide the hospital with consulting on cloud services, next-generation network design, implementation, and the managing of networking elements and resources. Additionally, Brooklyn Hospital intends to migrate from older technologies to unified communications and VOIP infrastructure.

Investors looking for the next catalyst should pay attention to the next earnings report, which should be coming out shortly. If InterCloud Systems can produce another strong quarter, the shares could be in for a strong spike.

Christine is an analyst and fund manager with almost 20 years of investment experience. She covers a variety of industries, with a special focus on technology, and likes to write about value stocks, poorly understood or under-followed situations, and contrarian perspectives.

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