Blinkx blames profit warning on "disparaging blog"

Blinkx lost as much as half its value on Wednesday after the video search company issued a profit warning, blaming a "disparaging blog" for a slower-than-expected return of demand.

Despite Blinkx's second quarter trading always being the slowest of the year, lower demand has impacted both on revenue and earnings before interest, tax, depreciation and amortisation (EBITDA).

"While revenues grew around 5% year-on-year, EBITDA will be around $5 million [£2.91 million] below management expectations for the period, based on the company's internal models," it said in a statement on Wednesday.

"We attribute this performance to industry-wide issues of efficiency and effectiveness, which, in our case was compounded by the lingering effects of the disparaging blog about the company. This resulted in a slower-than-expected return of demand, despite earlier signs of normalisation," it added.

Clearly, Numis Securities thinks there’s worse to come. After an initial look at the numbers, the broker has cut full-year profit forecasts by $10 million to just $33 million.

Blinkx called for an inquiry into short-selling earlier this year after around £400 million was wiped off its market value after a blog by an associate professor from Harvard Business School raised concerns about its advertising tactics and the value it provided for advertisers. In response to the blog, Blinkx said: "Blinkx strongly refutes the assertions made and conclusions drawn in the blog post."

Before the blog release in January, the company had a market capitalisation of £747.35 million when trading at 186.75p. On Wednesday this had fallen to £139.07 million with a 34.75p share price.

User view

'Dwiggy' thought the fall in share price was a "massive over-reaction" and some Interactive Investor discussion board users were ready to take advantage and buy into Blinkx at the lower levels.

'Marketchaser' agreed with 'dwiggy': "40% wiped off market cap for a £5 million shortfall - are you kidding me. This is being played like a fiddle. Massive over-reaction and opportunity for those wishing to take a position to take it now or soon."

While admitting that the lower EBITDA is like "losing 5p down the drain", 'Hub' commented: "when you have a hedge fund shorting your stock and the knives out - missing revenue targets is like taking a shot gun to your own head. The bigger issue here is the lack of growth and that's the major worry.

"Until they can deliver higher growth numbers... the market will keep them capped at levels that represent future revenue warnings. Didn't see this quarter being that ugly. If the next two quarters return back to growth, then it will be back into the 60's and 70's pretty sharpish. I think most were expecting them to wow everyone and dispel the doubters at the upcoming AGM. Instead - they appear to have come clean and will get a kicking when the doors open on the 15th."

Some did not agree with the user, however.

Talk of a potential takeover/merger bid was popular on the discussion board, with some suggesting a share buy-back could be a possibility.

'Itemclub' added: "Not all bad news. This is a great time to 'bed and ISA' if you have lost in your trading account. To shift the loss (crystallising) will be a good tax advantage and gains (in time) in your ISA tax free."