On Wednesday, LogMeIn, which provides software as a service-based remote connectivity, announced a strategic initiative that changes the direction of the company and will increase revenue. LogMeIn is converting all free accounts to a pay model. Users will have seven days from the time they log in to upgrade to a pay account or lose their account.
By doing this, LogMeIn will see some customers go to competitors who offer the service for free. However, LogMeIn has some benefits that will likely get customers to stick around and pay the price. This should lead to higher overall revenue in the next fiscal year than previously expected.
The stock is currently trading around $34.50 and is up 2.5% on the year.
Paid subscribers continues to be a strong area for the company, and this should help strengthen the business model. In the third quarter, LogMeIn added 21,000 paying subscribers. This grew the overall paid subscriber number to 558,000. LogMeIn has a renewal rate of around 80%. Operating margins increased over 1% thanks to the added paying subscribers in the quarter.
One of LogMeIn's key products is its join.me platform, which was the fastest-growing product in company history. Launched in 2010, the platform has seen 150 million session and saw revenue growth in the triple digits during the third quarter. Over 1.2 million users are on join.me to enhance their company meetings and provide a platform to get work done no matter where employees are. Several large businesses including Amazon (AMZN), Dropbox, Foursquare, Salesforce (CRM) and Urbanspoon are already using the pro paid version of this platform.
LogMeIn has seen continued success with its collaborative relationship with Salesforce. Back in November, LogMeIn was a key presenter at the Salesforce DreamForce 2013 Conference. LogMeIn's Xively platform continues to outperform thanks to a strong relationship with Salesforce. Collaboration cloud revenue represented 21% of the company's third-quarter revenue. Collaborative revenue grew 30% in the third quarter.
Another key growth platform is LogMeIn's Boldchat. According to the company, this release in October was the first major chat product to offer proactive engagement capabilities on the mobile web. As more customers shift to mobile, companies will be forced to adapt to a mobile chat platform to keep customers happy and engaged. LogMeIn should see significant wins in this category going forward.
Third-quarter revenue was strong for LogMeIn as total revenue increased 21% from the prior year. The company thinks they have a "favorable competitive position" in their existing markets, but more importantly is "opening up longer-term opportunities in some of technology's most promising markets".
LogMeIn shares trade near 52-week highs but could be called undervalued when looking at opportunities down the road. The company's main businesses compete with Cisco (CSCO) and Citrix (CTXS), which have market capitalizations of $122 billion and $11 billion, respectively. LogMeIn continues to trade at a value of less than $900 million. Shares were up 44% in 2013, but the positive catalyst of making all customers pay for service should provide a boost to shares to begin 2014.
On Feb. 13, LogMeIn will report fourth-quarter and full-year earnings. The new pay model should be a huge topic to be discussed by the company and by analysts during the question and answer segment. Investors might want to consider logging into this company before that date in a chance to see increased upside and long-term growth.
At the time of publication the author had no position in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.