Buy Blinkx (BLNX) at 132p
Says James Faulkner of WatsHot.com
First recommended on WatsHot.com over the Easter weekend, WatsHot editor James Faulkner believes that, with a dominant position in a major growth market, and the possibility of a takeover in the near future, Blinkx (BLNX) could be about to see its share price soar.
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Blinkx is the world's largest online video search engine, with 35 million hours indexed (almost 4,000 years). The firm's video search engine uses speech recognition to listen to the audio component of the video content, and then uses both the phonetic and text transcripts to match content with search queries. Its software categorises video content using a "Distributed Video Fetch Server" (dVFS) or "web crawler" ("spider" or "bot") to sample video web pages at high speed. This is far superior to conventional searches which usually just search through the text of video taglines – a method which can often have poor results. Indeed, Blinkx's is the most advanced video search offering in the market, surpassing even the abilities of search engine behemoth Google.
That is the first half of understanding Blinkx. The second part of the puzzle is ad sales. Blinkx monetises its offering by attracting advertisers to the material made available through its content partners. Blinkx's sophisticated technology enables ads to be coupled with the most appropriate content and to be matched to real-time viewing (i.e. placed at the most opportune moment). Blinkx's advertising partners, which include household names like Unilever, MacDonald's and Vodafone, pay at an agreed cost per view rate. The company's revenues are therefore dependent upon the amount of volume it attracts, both directly and through its syndication partners. The average daily search run rate during the six months to 30th September 2010 more than doubled year-on-year to 31.6 million searches per day.
Blinkx recently reported that trading for the second half of the financial year has continued to be strong. It expects revenue of $65 million, making for a 90% increase year-on-year and putting it ahead of broker forecasts. Operating profits are also expected to beat current analyst consensus estimates of $6.7 million. The cash generative nature of Blinkx's operations was underlined by a $17 million increase in the cash pile to almost $53 million. Some of this was put to use in the recent acquisition of Burst Media (BRST), which gives the company access to roughly 60% of the US online population. Compared to Burst Medias reported cost-per-mille (CPM ad rate) of $1.49, Blinkx's reported CPM at $20 represents an opportunity for an immediate uplift via its targeted-ad model.
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The opportunities on offer for a company like Blinkx, which has established a dominant role in a major growth market, are myriad. At a basic level, Blinkx is a beneficiary of the shift in advertising spending away from its traditional base (newspaper, television etc) and towards the online market. This development is underpinned by a number of key trends, such as the growth in internet exposure and usage, and the relative decline in traditional media. Advertisers are increasingly looking for ways to focus their campaigns to achieve better results for less cost, and the internet, and specifically Blinkxs technology, can help them do that. Overall UK online adspend rose by 4.2% year-on-year to reach 3.54 billion pounds in 2009, versus a 16.6% decline in other formats. However, within the online segment, display ad revenues fell by 4.4%, while the more targeted search-related adspend espoused by Blinkx rose by 9.2%.
Researchers at Cisco project that by 2014 mobile data traffic will have grown 39-fold, with some 72% being video-based. This represents a huge opportunity for Blinkx, which seems to be on the cusp of greatness. The market cap is around 450 million pounds and a FTSE 250 listing will surely follow in due course. A takeover is also a distinct possibility, but a predator would have to pay a serious premium to get its hands on the firm's technology. BUY.
