Motley Fool not convinced by Blinkx profit prospects

A new report by Motley Fool has raised concerns about Blinkx. The article states that despite talk of reduced operating expenses, re-branding and being “now well aligned with broader structural market trends,” the author remains unconvinced that the company can become a sustainably profitable and cash-generative business.

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Online video platform Blinkx (LSE: BLNX) this morning released a trading update ahead of its results for the year ended 31 March. The shares have fallen 15% to 18p, as I’m writing.

Still not convinced

A year ago, the company told us 2014/15 had been a transformational year for the online advertising industry and the company. Today, chief executive S. Brian Mukherjee told us 2015/16 has been … er, “a transformational year for the Industry and the Company”.

The 2014/15 transformational year saw Blinkx’s revenue fall 13% and adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) dive from $39.6m to just $3.5m. From today’s update we can see that the 2015/16 transformational year will see revenue fall around 22% with an EBITDA loss of $10-11m. Meanwhile, guidance of around $76m cash and equivalents on the year-end balance sheet represents a drop of $20m from 12 months ago.

Blinkx’s declining fortunes have coincided with online advertisers realising they were being somewhat ripped off for the money they were paying. Blinkx and its rivals have had to provide a better service at a lower price, as well as dealing with an industry shift from desktop to mobile and programmatic advertising.

Blinkx’s H1 revenue was down $17.6m on the previous six-month period, and I calculate that it has continued to hurtle lower in H2 by around $15.4m. Meanwhile, EBITDA remains in negative territory, with H2 looking like a loss of around $3.7m compared with $6.8m in H1.

Blinkx talks much of reduced operating expenses, re-branding and being “now well aligned with broader structural market trends”, but has still to convince me that it can become a sustainably profitable and cash-generative business.

Brighter prospects

Global distributor for engineers Electrocomponents (LSE: ECM) heads the FTSE 250 risers board, as I’m writing, with its shares up 8% at 261p, following a positive trading update.

Electrocomponents has seen revenue growth of 3% for its financial year ended 31 March, and said it anticipates that headline profit before tax “will be around the top end of market expectations”. The company added that it has so far delivered at least £6m of its targeted £25m annualised cost savings.

Electrocomponents prospects are looking brighter, but balanced against a weaker outlook for global economic growth, the shares, trading at perhaps 20 times earnings, appear to be fully valued.

Optimism

Shares of cancer drug discovery and development firm Sareum (LSE: SAR) have shot up by 67% to 1.18p after a mid-morning announcement by the company that a clinical trial application for one of its drugs has been approved by the UK’s regulatory agency. Subject to final NHS approval, two Phase I clinical trials are expected to begin in Q2 2016.

Last month, the company raised £1.1m in a placing at 0.7p a share, increasing the shares in issue to 2,645,223,988. At the current price of 1.18p, Sareum has a market capitalisation of £31.2m. This valuation suggests there is a good deal of optimism about Sareum’s prospects, given the early stage of things, with today’s drug being the first from the company’s development pipeline to enter clinical trials.

You really need specialist knowledge to assess small biotech companies, and even then it’s more art than science (ironically!) I don’t have the requisite knowledge, and if I were desperate for exposure to this area of the market, I think I’d be looking for a specialist fund to invest in rather than chancing my arm with individual stocks.