Will Blinkx Plc Survive Next Year?

With shares in Blinkx (LSE: BLNX) falling by a whopping 88% since the turn of the year, many of its investors are sitting on considerable losses. As, of course, is the company itself, with its bottom line being forecast to move from being in the black to being in the red during the current year.

After such a large fall in its share price, it seems as though the market has little confidence in Blinkx’s ability to turn its current situation around. Therefore, should investors be deeply concerned about Blinkx’s transitional period and, more importantly, is there a real chance that Blinkx could go bust over the next year?

As has been widely reported, Blinkx is in the midst of a period of huge change. It is attempting to fundamentally alter its source of revenue from desktop (where it has enjoyed considerable success in recent years) towards mobile. The reason for this is simply a shift in consumer tastes, with more people using mobile devices rather than desktops, with Blinkx being required to respond to this shift in order to survive.

While the current year is set to be hugely disappointing and see Blinkx’s bottom line fall from a pre-tax profit of £17.6 million last year, to a loss of £3.7 million this year, the medium term outlook looks much brighter. Certainly, next year is expected to see the company only break even, but given the vast changes that are currently ongoing at Blinkx, this would be a relatively good result and could go some way to improving market sentiment over the course of the next couple of years.

One big advantage that Blinkx has is its cash pile. As at the date of its interim results (11 November), it stood at around £69 million and, in addition, the company has no debt. Both of these features are great news for investors in the company, since it means that Blinkx is under less pressure than many other companies would be if they were faced with a similar situation.

In fact, the lack of debt and generous cash pile could be the most important positive for investors in Blinkx, since it means that the company has time to readjust its business model and return to profitability over the medium term.

While investor confidence in Blinkx is at a low ebb, the company seems to be financially able to weather further problems regarding profitability. Although it is forecast to break even next year, the transition taking place at Blinkx is considerable and, in reality, is likely to take longer than one year to fully effect. As a result, earnings forecasts could be downgraded in the months ahead.

However, Blinkx has the financial flexibility to make the necessary changes to its business in order to turn things around. While this may take longer and be more painful than investors would wish for, Blinkx has the opportunity to do so with plenty of cash and a lack of debt. As a result, it is very likely that it will survive 2015, although profitability may have to wait for a future year.

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Peter Stephens 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.