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Why I’d Buy Blinkx Plc, But Sell Monitise Plc

While most Foolish investors would consider themselves to be long term (in terms of focusing on where a company may be years down the road rather than how it will perform next week) there has to be a point at which potential is translated into share price gain. Certainly, it can take a number of years for the potential within an idea or a company to be translated into profitability, but making a strong return on an investment is the only reason to buy a slice of any company.

Great Ideas

This fact seems to be highly relevant when looking at two well-known smaller companies: Blinkx (LSE: BLNX) and Monitise (LSE: MONI). Both are loss-making at the present time, but have great products and, in Monitise’s case, a number of blue-chip customers. As such, their long-term futures appear to be relatively bright, with online payment solutions becoming increasingly widely used in the banking sector, and online advertising remaining a very strong growth market.

Profitability

The problem, though, is turning great ideas into profit. As mentioned, it can take a number of years for this to occur, during which time the share price of the company concerned makes little in the way of a return for investors.

However, in the case of Blinkx, it seems to be doing all of the right things through which to return to the relatively high levels of profitability that it enjoyed prior to the last financial year. Its recent strategic announcement that it is consolidating its brand advertising divisions under one name: RhythmOne, seems to be a shrewd move and should help the company to not only appeal to potential customers, but to also improve efficiencies and communication within a business that has made multiple acquisitions in recent months.

As such, Blinkx appears to be on-track to meet its forecast of a black bottom line in the current year, and this could act as a catalyst on the company’s share price.

Meanwhile, Monitise continues to have a relatively unappealing outlook. For example, it is expected to post a loss of £77m in the current year, which would be an increase from last year’s loss of £63m. Certainly, next year is forecast to show an improvement, with Monitise set to deliver a loss of £33m, but this is still double the loss that the company posted all the way back in 2010. Since then, it has attracted new investors, more major clients, and the payments solutions marketplace has moved more towards Monitise’s offering in terms of using more technology.

Therefore, while it undoubtedly has long term potential, it still seems to be looking for the right business model through which to provide investors with a decent return. And, while its switch to a subscription-based model may help, it is unlikely to be sufficient to rejuvenate the company’s bottom line in the medium term.

Looking Ahead

With Blinkx set to drastically improve its financial performance within the next two years, it has a clear catalyst to push the company’s share price higher. Certainly, it must deliver on its upbeat forecasts, but if it is able to turn its bottom line around then its share price is likely to follow within the next couple of years. Monitise, however, is still some way off posting a profit and, with a recently appointed CEO, there are likely to be a number of changes over the coming months which could hurt the company’s share price. And, with there being little sign of a net profit in sight, it is difficult to see how investor sentiment in Monitise could be positively catalysed over the medium term. As such, Blinkx appears to be worth buying, while Monitise remains an interesting company to watch.

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