Why Shares In Blinkx plc Plummeted

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Although we don't believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Shares in video search and ad company Blinkx (LSE:BLNX) nose-dived by as much as 52% this afternoon, following damaging allegations made about its business model in a blog posting by Benjamin Edelman, an associate professor at Harvard Business School.

So what: About £400 million was wiped off the market value of Bliknx after the blog raised concerns about Blinkx’s advertising tactics and the value it provided for advertisers.

Edelman, the author, comments:

“Comparing Blinkx’s revenues to competitors, I am struck by Blinkx’s apparent outsized success. See the table at right, finding Blinkx producing roughly twice as much revenue per employee as online video/display ad networks and advertising technology companies which have recently made public offerings. Looking at Blinkx’s sites and services, one doesn’t get the sense that Blinkx’s service is twice as good, or its employees twice as productive, as the other companies listed. So why does Blinkx earn twice as much revenue per employee?

“One natural hypothesis is that Blinkx is in a significantly different business. While other services make significant payments to publishers for use of their video content, my browsing of Blinkx.com revealed no distinctive content obviously licensed from high-quality high-cost publishers. I would not be surprised to see outsized short-term profits in adware, forced-visit traffic, and other black-hat practices of the sort used by some of the companies Blinkx has acquired. But neither are these practices likely to be sustainable in the long run.”

Now what: It’s unclear whether the allegations contained in the blog will hold up to scrutiny. General understanding of the company’s business model is low and the business model may be no more unusual than many other ad tech companies. 

Blinkx released a statement strongly refuting the allegations made against it, adding that trading in its third quarter was in line with expectations, with there being no change to the financial performance or outlook for the business.

Prior to today, City experts were predicting Blinkx’s annual results to reveal earnings per share at 5p. Following today’s price movement the shares presently trade on a P/E of 24.

> Mark does not own shares in Blinkx.