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Is Blinkx Plc’s Takeover Of All Media Networks A Game Changer?

Shares in Blinkx (LSE: BLNX) have risen by 6% today after the online advertising company announcing another acquisition as it seeks to improve its long-term growth outlook. This time the company being acquired is internet media company, All Media Networks, which owns a number of websites such as Allmusic.com and Allmovie.com, which, cumulatively, have around 25 million unique users per month. The deal will be paid for entirely in cash (the amount paid has not been disclosed) and, according to Blinkx, it will be earnings accretive in the first year following the acquisition.

Further Progress

The deal appears to have been warmly welcomed by the market, with investor sentiment improving so as to mean that Blinkx’s share price has risen by 10% since the turn of the year. This is a key step for the company, since investors had seemingly lost patience with the future prospects of Blinkx and caused a decline in its share price of 87% last year. And, while it will take time to rebuild investor belief in the future potential of the company, acquisitions such as the one announced today are clearly a big step in the right direction.

Profitability

Of course, what investors want to see from Blinkx is profit. This is due to return in 2017, with Blinkx being expected to break even next year. And, with today’s acquisition being earnings accretive in the first year, it could now be the case that Blinkx is able to turn a small profit next year, which would undoubtedly cause investor sentiment in the company to improve significantly. That’s because it would provide evidence that Blinkx’s new strategy of focusing on mobile rather than desktop and seeking to grow through acquisition rather than just organically is working.

Looking Ahead

Today’s acquisition is unlikely to be the last undertaken by Blinkx in 2015. As mentioned, the deal is being funded entirely by cash and, with Blinkx having a very robust balance sheet and a considerable cash pile, it seems likely that it will be able to afford to make multiple other acquisitions in the short to medium term. This should significantly increase its chances of returning to profitability by 2017 (possibly earlier if it makes more earnings accretive acquisitions this year), which should be the catalyst to push its share price much higher.

So, while today’s acquisition is not a game changer, the series of acquisitions in which Blinkx is engaging looks set to be. As a result, and while its future still has considerable risk from a changing marketplace and the fact that it is a loss-making business, Blinkx seems to be worth buying for its long-term price appreciation potential.

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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.