Blinkx, the video search and ad group spun out of Autonomy, has disappointed its investors for the second time in three months.
Following a profit warning in July, the company now says that the fall in revenues seen in the first quarter has continued into the second. It has been making a push into the mobile market, which is expected to contribute $20m of the expected first half revenues of $102m to $104m. But this figure is below analysts' forecasts, as is its new prediction it will only break even for the six month period.
In July it warned first half earnings would be around $5m below its expectations, a few months after a blog from Harvard Business School questioned aspects of its business model, claims the company rejected.
Following this latest disappointment, analysts at the company's broker Numis summed up the situation:
Blinkx has released a trading update for the 6m to September. It indicates that revenues will be $102-4m, which compares with our estimate of $117m and at the mid-point represents a 8% year on year fall. The group expects EBITDA to be approximately breakeven, compared with our expectation for a $6m profit.
The group guides to a net cash balance of $115m, equal to 17p per share. The group believes that it has reached an inflexion point and has seen sequential month-on-month growth since July, with mobile now accounting for 20% of revenues. The group will provide greater detail at its interims on 11 November and we put our forecast, recommendation and target price under review until then.
David Johnson at Northland Capital said:
A disappointing update with first half revenue expected to contract around 7% over the same period last year. Given that management was reporting around 5% growth in first quarter revenue in the July update, this suggests that the second quarter has been very weak.
The sector continues to evolve rapidly and companies need to be very nimble to avoid being left behind. Meanwhile the likes of Google and Facebook continue to grow their advertising operations. Current price is partially underpinned by cash but there was a $12m outflow in the first half (including the acquisition of Lyfe Mobile).
Meanwhile Alex DeGroote at Peel Hunt said the best option now was for someone to buy Blinkx:
Blinkx has delivered another highly material profit warning. The saving grace is net cash of around $115m. Cash burn is now a real prospect. Hence the company must seek a corporate buyer, in our view.
Investors will recall a fund-raising (for a deal) took place only months ago. With the company now on the cusp of losing money, the concern is thus cash burn. Other things being equal, there is around 18p per share of cash 'backstop' value.
Blinkx comments that in fact July marked an inflection point on sequential revenue trends. This remains to be seen, in terms of continuity. Likewise, developments on mobile are said to be gaining traction (now around 20% of group, albeit at much lower gross margin).
We have no formal house view on Blinx. Historical EBITDA multiples look attractive but (downward) profit momentum is alarming. That being said, investors will be aware of the cash in the business, together with still-impressive revenue scale. Common sense dictates to us that Blinkx must have some attraction to a corporate buyer.
Blinkx shares have fallen 4.5p to 30.75p, well off the 52 week high of 234p.
Mike Lynch, who sold Autonomy to Hewlett-Packard in 2011 prompting much subsequent acrimony, is still listed as owning 17.9m shares in Blinkx, or 4.47%, although he had been gradually selling down the stake.
Meanwhile HP sold its remaining shareholding at 120p a share in June last year.
