Cbeyond (CBEY) is a communications solutions provider for small and mid-sized businesses. The company was founded in 1999 by Jim Geiger. The company was initially managing technology services for corporate clients in the Atlanta region. Over time, the company expanded and went public in 2005. Cbeyond now provides voice, data, cloud and mobile solutions to over 60,000 businesses across 14 markets domestically. With its Voice over Internet Protocol (VoIP) services, we find the company offers a very attractive service which can help keep its long-term growth sustainable.

When Cbeyond expanded into Texas and Colorado, it added a mobile services division to its offerings. Soon after, it went public on November 2, 2005, opening at $12 a share. As it continued to expand its product portfolio, its customer list grew as well as its reputation. The company became known for developing the world’s first 100% Voice-over Internet Protocol network and the first to utilize it, along with Session Initiation Protocol trunking. Cbeyond started acquiring cloud services providers such as Maximum ASP for its Cloud Services division. The company was garnering awards for its high speed capabilities and networking services, building its reputation.

Over time, as its growth continued, management wanted to alter its approach to small- and mid-sized businesses by focusing more on the growing cloud storage technology. With Average Revenue per Unit steadily declining, the timing was right for a change in focus. Cbeyond revamped its sales team, with more tech-centric personal and cloud-savvy hires. The so called, “Cbeyond 2.0” makeover was in effect and the company was looking to transform its business model. The transition began in 2011, and costs related to the makeover persisted over most of that year and into 2012. However, while costs rose, newer customers related to the "2.0" makeover benefitted the company’s 2012 sales, causing management to set a goal of 25% of revenue to be attributable to the transition for 2012.

Also, the company began its fiber initiative, which it hopes to complete this year. Cbeyond’s goal to transform about 1,000 dark-fiber lit buildings by the end of the year seems achievable as the company already has about 700 orders in place. These fiber-lit buildings will be able to produce higher bandwidth and cost-effective Ethernet solutions to its customers over the older “copper” wire technology the company is trying to get rid of. With the transformations currently in place, investors can take notice of the heavy capital spending it is undertaking. However, we believe the current cost-pressure environment will be beneficial in the long-run as Cbeyond is positioning itself to be a major player in the cloud services business.

With business leaders expecting a better operating environment this year, despite slow hiring levels and pressure from healthcare and tax legislature, technology is expected to play a major role in business growth as companies begin switching to high-speed, always-on internet access with better customer support. Also, businesses switching to cloud-based storage are finding it easier and more flexible for them to conduct a variety of business functions including data archival, accounting, file sharing, email and online banking and cash management.

With its wide customer-base, Cbeyond routinely conducts surveys for the decision-makers of the businesses they cover, to assess the business outlook and current and future-state of technology within their companies. Cbeyond uses this information to take a deeper look at growing technological trends and uses of technology within the business. One of the surveys conducted has shed light on the negative impact expected with the recent changes in healthcare, especially on the bottom-line results. Many of Cbeyond’s customers believe that general market conditions may be unfavorable due to increased costs from higher premiums for employees. Information such as this could prove valuable for Cbeyond as it looks to please its customer base and help come up with solutions to help mitigate the problem.

With its increasingly respectable reputation, strong customer relations, and growing focus on technological advancement, Cbeyond has the potential for growth as it transforms its business model to take advantage of changes in networking technology. While the company may experience some current pressure, investors should keep in mind the costs associated with the transformation of its business.  The cloud-based evolution will make Cbeyond a major player for small and mid-sized enterprise market. For a more detailed report on Cbeyond, including long-term analysis and forecasts, subscribers should examine our full page report in The Value Line Investment Survey.

At the time of this article’s wiring, the author did not have positions in any of the companies mentioned.