Shares in internet video platform Blinkx (LSE: BLNX) fell by almost 40% this morning, after the firm’s management warned investors that an operating loss is expected for the first half of the current year, which ends on 30 September.
First-half revenues are now expected to be between $85m and $95m, down from $106m during the first half of last year.
More worrying is that the firm expects to report an adjusted EBITDA loss of between $5m and $8m for the first half, down from an EBITDA profit of $1m in 2014/15, and of $18m in 2013/14.
EBITDA is earnings before interest, tax, depreciation and amortisation and is a notoriously undemanding measure of profit, as it excludes so many costs. Blinkx’s adjusted EBITDA measure also excludes acquisition and exceptional costs. If Blinkx cannot even manage an adjusted EBITDA profit, then investors can be fairly certain that the firm is losing cash fast.
This was confirmed in today’s statement, where Blinkx said that its cash balance is expected to be $82-85m at the end of September, down from $95m at the end of March. Included in this forecast outflow of $10-13m is a $5-8m operating loss, $4m of investment and $2m on restructuring costs.
Another year of falling sales?
The figures provided by Blinkx today make it clear that current analyst forecasts for revenue of $225m in the current year are now too high.
Blinks said today that it expects revenue from its core business to rise by 75% from $31m in the first half to $55m in the second half of the year. However, revenue from the firm’s declining non-core business is expected to slide from $75m during the first half to just $30m in the second half.
Added together, these numbers suggest that Blinkx will report revenue of $191m for the current year.
Core growth is strong
Revenue growth in Blinkx’s core business, which basically provides streaming video and relevant advertising for internet publishers to show on their websites, looks strong. The question for investors is whether this business can generate an acceptable profit margin as it scales up.
Blinkx says that while the profitability of its core product will not match that of its declining non-core products during the first half of this year, this situation is expected to improve in the second half. A return to profitability is forecast in the net 6-12 months.
The company hopes that its new RhythmOne platform will enable Blinkx to capture the scale it needs to make money from its business as a middleman, repackaging and combining video feeds and advertising.
In my view, Blinkx remains a speculative buy at best.
Even if the firm’s core products grow successfully, they may not achieve the high level of profitability previously enjoyed by Blinkx’s declining non-core products. This could mean that a lower valuation makes sense for the firm’s shares.
Ultimately, I believe Blinkx shares may yet have further to fall, especially if a return to profit takes longer than expected.
