It?s been an incredibly tough few months for investors in Blinkx (LSE: BLNX), with shares in the internet video search company falling by over a third during the period. That?s mostly been due to significant changes occurring at the company, with it going through a transitional period that will see it switch its focus away from desktop and towards mobile, with its bottom line plunging into the red in the meantime.
However, Blinkx still has a sound balance sheet and, following the recent acquisition of AdKarma, could see its bottom line improve over the medium term. Could Blinkx, then, be…
It’s been an incredibly tough few months for investors in Blinkx (LSE: BLNX), with shares in the internet video search company falling by over a third during the period. That’s mostly been due to significant changes occurring at the company, with it going through a transitional period that will see it switch its focus away from desktop and towards mobile, with its bottom line plunging into the red in the meantime.
However, Blinkx still has a sound balance sheet and, following the recent acquisition of AdKarma, could see its bottom line improve over the medium term. Could Blinkx, then, be worth as much as 35p, or as little as 15p per share?
The acquisition of AdKarma seems to make good sense for Blinkx at the present time. For starters, it’s a profitable company, with AdKarma generating operating profit of $0.6 million last year and being forecast to deliver operating profit of at least $3 million in the current year. Therefore, it is likely to aid Blinkx’s bottom line performance imminently, with it being earnings accretive in the first full-year post acquisition.
In addition, AdKarma is expected to accelerate the growth of Blinkx’s online video advertising business (both desktop and mobile) and seems to fit in with the company’s future strategy. For example, it operates within the company’s three key growth areas of video, mobile and programmatic and, as such, allows Blinkx to further engage in what it feels are the future of digital brand advertising.
The deal will cost $20 million, with $15 million paid in cash now and a further $5 million being paid in cash or stock in a year’s time. This highlights the benefits of having a healthy balance sheet, with Blinkx having no debt and a strong cash position it can afford to improve its business through M&A activity. On this front, it would be of little surprise for there to be more activity in 2015, which could not only improve the company’s bottom line, but also stimulate investor sentiment in Blinkx, too.
Clearly, Blinkx is enduring a challenging period at present and the ‘transitional year’ that it discussed in its recent earnings release could take longer than the company envisages. In addition, the integration of any acquisition takes time and, if there are more deals done, this could delay progress further.
However, Blinkx remains a company with considerable long term potential. Certainly, its shares are hugely volatile and, although sentiment may strengthen in the wake of further acquisitions, there could be challenging news flow ahead, too, in terms of delays to its transitional period. As such, Blinkx’s share price may not yet have bottomed out, making 15p still realistic in the short term, but with there being significant potential for a share price above 35p in the long run, too.
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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.