Blinkx Plc: A ‘Story’ Stock Gone Sour

blinkx.2Blinkx (LSE: BLNX) has the usual characteristics displayed by the hottest of AIM stocks — a great ‘story’, the potential for lottery-like winnings, and a large herd of excited private investors posting on financial bulletin boards.

Blinkx was spun out of Autonomy and floated on AIM in 2007. The flotation included a placing at 45p a share. The shares reached a high of 230p towards the end of last year, but have been falling since; the price is 30p at the time of writing. Is Blinkx a story stock gone sour?

The Blinkx story

In its own words, Blinkx is an “internet media platform powered by … the world’s most advanced video engine. We link viewers with content publishers and distributors, and monetize those interactions through advertising”.

I can’t pretend to know much about such things as “metatag indexing”, “visual spiders” and “Shannon’s Information Theory”, all of which feature in the blinkx CORE “video engine”. But, then, I don’t suppose many non-specialists in the field do either.

For plenty of lay investors, the combination of world-leading kit, a massive on-line market and the potential for rapid growth in ad revenues was enough to make Blinkx a seductive story stock.

The Harvard hitman

Blinkx’s shares took a massive hit at the end of January this year. Half the value was wiped off the company at one point during the day.

The carnage was caused by a blog post from Harvard University professor Ben Edelman. The self-styled ‘adware geek’ cast aspersions on the ethics and sustainability of Blinkx’s business model, including allegations of defrauding advertisers.

Despite a part of Edelman’s work having been prepared “at the request of a client that prefers not to be listed by name”, and a response by Blinkx that it “strongly refutes the assertions made and conclusions drawn in the blog post”, the shares failed to rebound.

A story stock gone sour

In July, there was further bad news for shareholders. Blinkx announced recent trading had been below management expectations, producing a shortfall in revenue and earnings.

The company said: “We attribute this performance to industry-wide issues of efficiency and effectiveness, which, in our case was compounded by the lingering effects of the disparaging blog about the Company”.

Recently, Blinkx has reported continuing weakness. Management now expects revenue for the six months to 30 September to be lower than the corresponding period last year ($102-$104m versus $112m) and earnings (before interest, tax, depreciation and amortisation) to be “approximately break-even” versus $18m.

Awful news for a supposedly high-growth business, throwing into doubt not only the company’s ability to rapidly increase revenue, but also to make a profit.

The market hasn’t been convinced by Blinkx’s assertion that: “We have taken decisive steps to fortify our business model and realign our resources to target growing areas of the sector, and we feel confident in our prospects going forward”.

Blinkx’s future and the fortunes of many followers who invested at considerably higher prices than today’s 30p remain up in the air.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.