This high-tech firm increases revenue by 72%, only to see its shares dive 17%.
Here's one incredible technology statistic for you: video website YouTube -- owned by Google (NASDAQ: GOOG.US) -- recorded more than a trillion video playbacks last year. That's 140 playbacks for every one of the seven billion people on our planet.
blinkx and you'll miss it
With such data growing at an exponential rate, businesses need highly sophisticated tools to manage this flood of information.
Hence the existence of firms such as blinkx (LSE: BLNX), which describes itself as "the world's largest and most advanced video search engine". Although blinkx shares are listed on AIM (London's junior market), it is based in San Francisco, California, safely nestled among so very many high-tech firms.
In a market announcement this morning, blinkx reported that it expected revenue of $114 million (almost £72 million) for the year ending 31 March. This represents a near-72% increase on its top-level performance in 2010-11.
With such smashing growth, you'd expect to see a bump up in blinkx's share price, right? Wrong!
As I write, blinkx shares have dived more than 17% to 43p, valuing the tech firm at £155 million. The reason why blinkx shares have come crashing back to earth today is simple. In short, its full-year revenue was more than 6% shy of analysts' consensus expectations of $121.5 million.
Despite this disappointment, blinkx expects to report an operating profit (ignoring one-off and amortisation costs of $9 million) ahead of the consensus forecast of $10.3 million, plus operating cash flow ahead of forecasts. What's more, the firm's gross margin was a whopping 53% in 2011-12 and it has $38.4 million in cash.
Video thrilled the internet star
As a leading player in a cutting-edge market, blinkx is benefiting hugely from the rapid growth in online audio, video, user-generated and television content. Even so, using IFRS reporting standards, it expects to make an operating profit above $1.3 million this year, which is a whopping 190 times its current market value.
Despite this stratospheric rating, Suranga Chandratillake, founder and chief executive of blinkx, said:
"We believe this is a significant achievement. Growth across the business has been strong, and whilst it is disappointing to deliver revenues a little below expectations it is worth noting that in a challenging economic climate, blinkx outperformed the aggressive growth of the online video advertising industry by over 80%. We are confident in our position in the market and the progress we have made this year, and are excited about the opportunities that lie before us."
High tech means rich ratings
At their current price of 43p, blinkx shares trade on a forward price-to-earnings ratio of 35.8 and a price-to-revenue ratio of around 2.2, both of which are premium ratings. Also, in common with almost all small technology firms, blinkx pays no dividends to shareholders.
On the surface, these seem like incredibly rich ratings for a business that failed to meet its revenue targets in its most recent financial year. Then again, blinkx has experienced explosive growth in the past four years, with revenue soaring from $6.6 million in 2007-08 to more than 17 times that in 2011-12.
What's more, blinkx occupies a sweet spot in the world economy, being at the heart of Silicon Valley's seemingly unstoppable high-tech boom. In a week when Facebook paid $1 billion to acquire photo-sharing company Instagram (a business founded 15 months ago that has only 13 staff and almost no revenues), who am I to argue that blinkx's ratings are too high?
Six months ago, blinkx shares were riding high at 160p, but now trade at roughly a quarter of that level. While this may suggest some value is emerging at blinkx, I wouldn't consider buying its shares until after seeing its annual results, which are due on 18 May.
In summary, blinkx could be a prime takeover target for one of the cash-rich tech giants looking to grow through acquisitions, so its shares are worth a look.
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