Blinkx (LSE: BLNX) today released its results for the year ended 31 March. The headline numbers from the video search engine firm don’t make for pretty reading:
- Revenue: $215.0m (2014: $247.2m) — down 13%
- Adjusted EBITDA: $3.5m (2014: $39.6m) — down 93%
- Loss before tax: $24.8m (2014: profit $17.6m)
- Cash at year end: $95.7m (2014: $126.9m) — down 25%
The numbers are a little ahead of the guidance given by Blinkx in a trading update last month — revenue of at least $210m, adjusted EBITDA of at least $3m, and cash above $90m — but there’s no getting away from the fact that this was a hugely disappointing performance by the company.
However, there are reasons for optimism, which I’ll come to shortly.
First, what went wrong last year? Blinkx operates in a dynamic industry, which is currently undergoing a rapid structural shift in the direction of mobile, video and programmatic advertising channels. As a result, the company experienced a big drop in year-on-year desktop revenue, which was only partially offset by organic investment and strategic acquisitions focused on the emerging growth channels.
Arguably, Blinkx’s management was a little behind times, having to respond to the industry shift, instead of anticipating it and moving early to position the business to take advantage of the opportunity. Nevertheless, the company’s large cash pile has enabled it to now respond with appropriate investment and acquisitions.
Management has also invested in “supply quality and brand safety” (to reduce dodgy practices in the supply chain that result in advertisers being ripped off), as well as recently simplifying its proposition to advertisers and partners by consolidating nine sub-brands behind a single new brand, RhythmOne.
I mentioned earlier that I think there’s some cause for optimism. I’ve reached that conclusion after breaking down last year’s numbers into two halves. Some of the key numbers are shown in the table below.
| H1 2014/15 | H2 2014/15 | FY 2014/15 | |
| Revenue ($m) | 106 | 109 | 215 |
| Adjusted EBITDA ($m) | 1.023 | 2.483 | 3.506 |
| (Loss)/profit before taxation ($m) | (9.703) | (15.097) | (24.800) |
| Cash burn ($m) | (12.346) | (18.829) | (31.175) |
| Acquisitions ($m) | (3.163) | (18.584) | (21.747) |
| Cash burn excluding acquisitions ($m) | (9.183) | (0.245) | (9.228) |
| Cash at period end ($m) | 114.563 | 95.734 | 95.734 |
As you can see, both the loss before tax and cash burn deteriorated markedly from H1 to H2. However, revenue ticked up in H2, adjusted EBITDA increased, and cash flow showed a huge improvement when you exclude the cost of acquisitions. Sure, there was still cash burn in H2 of $0.2m on this basis, but that was a massive improvement on H1’s $9.2m burn.
Overall, the numbers suggest to me that the actions management undertook in H1 were already beginning to bear fruit in H2. And that the further investment and acquisitions in H2 — together with the remaining availability of substantial cash on the balance sheet — bode well for the future.
Blinkx says it anticipates a return to growth for 2015/16, accelerating into 2016/17. It appears that management is on the right track with its strategy, and, if so, the company could come to be worth considerably more than its current enterprise value (market cap minus net cash) of around £82m.
