Today’s results from Blinkx (LSE: BLNX) highlight just how tough the first half of the year has been. Indeed, the seller of video search and advertising services has reported a pre-tax loss of $9.7 million for the first half of the year, which is well down from a pre-tax profit of $10.7 million in the first half of 2013.
A ‘Transitional Year’
Of course, management is labelling the current period as a ‘transitional year’, where the company’s desktop offering is struggling to deliver strong numbers as the industry shifts to mobile. This is evidenced in Blinkx’s results, where mobile accounted for just 1% of revenue in the first half of last year, but now accounts for 20% of revenue.
Despite this growth in mobile and its future potential, Blinkx is seeing its top and bottom lines decline. For example, revenue for the six month period fell from $111 million last year to $106 million in the current year and, while Blinkx remains profitable based on adjusted EBITDA, the bottom line is firmly in the red and could remain so over the short to medium term as Blinkx attempts to adjust to major shifts in the marketplace.
Looking Ahead
Clearly, Blinkx (nor any company) is able to withstand such heavy losses indefinitely. However, Blinkx could turn things around, simply because it has a considerable cash pile with which to overcome its shorter-term issues. Indeed, Blinkx now has a cash balance of over $114 million and is debt-free. As a result, it may have the time to adapt its business model and the way it operates to the shift from a desktop to a mobile offering.
The company certainly feels it has the potential to maximise shareholder returns, but with desktop seemingly being an area that lacks growth (and yet which still contributes 80% of Blinkx’s revenue) it could prove to be a transitional number of years, as opposed to just one transitional year.
Investment Potential
Of course, Blinkx does continue to have considerable potential. As highlighted in its results, revenue and profit growth have improved since their summer lows and it has enjoyed numerous new business wins, with new content partnerships being agreed with Hallmark, Buzzfeed and Whalerock, for example. Furthermore, it acquired LYFE Mobile and continues to engage with the likes of Disney, Target and McDonald’s. Therefore, there is undoubtedly longer term potential.
However, the shift to mobile could take longer and prove to be more painful than expected. Blinkx has been almost wholly focused on desktop until recent months, and it will take time for it to change. With investor patience being rather thin as a result of Blinkx being an established, rather than start-up, company, its shares could decline further until its top and bottom lines start to pick up.
As such, it may be worth waiting before buying a slice of Blinkx. Indeed, patience has never lost anyone any money and it could prove to be a key asset in turning your portfolio into a seven-figure one.