Can Photobucket Make a Comeback through M&A?

Photobucket wants to reclaim a spot at the top of the crowded photo and video sharing space, and it’s prepared to open its wallet to do so.

The Seattle-based company is actively looking at a number of potential acquisition targets, CEO Tom Munro told me in an interview this week. Photobucket is currently turning a profit and is “absolutely serious” about looking at bolt-on buys, he said, noting that the company would likely pay for deals with a mix of cash and stock. “We’re actually looking at a number of acquisition opportunities,” he said. “We’re not looking to acquire companies for user growth; we’re looking to acquire technologies.”

While Photobucket does not have much of a track record as an acquirer, Munro himself has both sell- and buy-side M&A experience. Most recently as CFO of photo software firm Ontela, he oversaw Ontela’s December 2009 acquisition of the Photobucket assets from News Corp (s NWSA).  Munro’s resume also includes time as CFO of software firm Vallent, where he handled several acquisitions before the company’s sale to IBM (s IBM). He assumed the CEO role for Photobucket in October 2010.

The new focus on M&A is part of a larger strategy to aggressively add more user-friendly applications in the months ahead. Photobucket’s first step in this new direction came Wednesday, with the debut of an Instagram-like app called Snapbucket, which allows users to add filters and effects to photos and share them through social networks.

A lot has changed in the online photo space since Photobucket’s inception in 2003. Facebook is now far and away the Internet’s top photo sharing destination, with more than 2.5 billion photos being added to the site every month. The iPhone (s AAPL) with its increasingly awesome camera capabilities has created a gold rush for mobile app developers and led to runaway successes like Instagram.

Meanwhile, Photobucket has had a rocky few years. The company was acquired by media conglomerate News Corp. (s NWSA) for $300 million in 2007 , only to be sold off in late 2009 after suffering from highly publicized DNS attacks and reported failures in corporate integration.

Photobucket has spent the better part of 2010 “transforming” itself, Munro told me. “We brought in a new attitude and a new management team, and got the business back to profitability.”

In our interview, Munro made it clear that Photobucket is highly motivated to get back in the game. The ambition will probably come in handy for the company, which has quite a bit of catching up to do. Whether the innovation comes from building new technology or buying it, Photobucket’s big challenge for 2011 is getting up to speed in what is now a very competitive space.