The Glue of This Hyper-Connected World

 | Jun 22, 2012 | 11:30 AM EDT  | Comments
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Next time you sign into your Apple (AAPL) iPad to watch the HBO shows Girls or Game of Thrones, think for a second about what is going on under the surface. The software asks you to first select your cable company, and then you have to type in your user name and password for authentication -- and only then can you watch the show.

It's just an everyday part of life in our hyper-connected world, but that task entails a lot of action behind the scenes. Your information is passing through a number of different channels that each perform a different role in letting the Internet service provider and the iPad know, in an instant, that you are entitled to see the show on command.

One of the key players that ties together this data chain is Synacor (SYNC), which operates integration, authentication and engagement platforms for cable, satellite, telecom and consumer electronics clients to deliver content.

Synacor provides its services to HBO, CNN and many other cable operators and Internet service providers. The company builds and maintains one-stop-shop Web portals from which customers can access bill pay functions, email and voicemail access, Internet security services and online TV listings.

George Chamoun created the company 12 years ago in Buffalo, NY, merging portal infrastructure company MyPersonal with Chek.com, a messaging platform provider. He continues to serve as executive vice president of sales and marketing, while CEO Ronald Frankel handles the reins.

Although Synacor's clients include everyone from Verizon (VZ) and Windstream (WIN) to Toshiba and CenturyLink (CTL), its core focus is small and mid-sized firms that aren't necessarily equipped to handle these services in-house. Synacor already controls a whopping 25% of the niche, and is the biggest supplier to those who utilize a third party, followed by a unit of Yahoo! (YHOO) at 20%.

One of Synacor's newest products, and a key growth driver for the future, is TV Everywhere. As more television content moves to the online space, and as services such as Netflix (NFLX) and Hulu continue to challenge traditional cable TV providers for customers, the old guard has been forcde to adapt. There's a very good chance that, if you visit your cable provider's website, you will find a portal that allows you to view many of the channels to which you have access as part of your monthly cable subscription.

Cable TV operators have negotiated rights to the online distribution of many of the networks they carry, allowing you to view many of your favorite programs directly from its website. That's where Synacor's TV Everywhere comes in:  It creates the Web portal and integrates the software from all the parties that gives your TV operator the ability to allow this access.

Research-investment firm Citigroup Global Markets conservatively estimates the firm's total addressable market at $1 billion in sales, including targeted Internet service providers, newly targeted consumer electronics firms and international firms in the Canada and Western European markets. That presents a tremendous growth opportunity for the firm, considering it finished the year with just over $91 million in total revenue.

Another major growth driver for the firm has been its recent foray into consumer electronics, as it has launched the Web portal for Toshiba's laptops and tablets. Toshiba marks Synacor's first electronics client, but already represents more than 10% of the company's revenue, thus paving the way for explosive growth when Synacor signs other clients in this sector.

The one key area in which the firm had had no presence was the mobile market -- but its recent purchase of HTML5 system provider Carbyn will help rectify that problem. The acquisition gives the company a platform from which to deploy its current offerings on mobile phones and tablets.

Although the company has been around for a decade, it's really just getting its footing and is unquestionably still in an early growth phase. Revenues have risen 50% in the past three years, while net income has risen an incredible 655% during that same time frame.

Synacor (SYNC) -- Daily | Source: StockCharts.com

Shares have risen 161% since the stock went public in February, but there are plenty of opportunities that lie ahead, so keep this one on your radar. Its next quarterly earnings report is due in July.

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