TIME TO BUY BLINKX
5 August 2011
By Steven Frazer
A weak share price has spun the risk/reward wheel back in favour of the video search star
If there is a single word to sum up blinkx (BLNX:AIM), 'volatile' may well be it, yet phrases including 'exciting,' 'growth' and 'potential' could do the job just as well. What is certain is the online video search specialist spun-out of Autonomy (AU.) in 2007 has software that is craved and coveted by the internet's majors, such as Microsoft (MSFT:NDQ) and Google (GOOG:NDQ). With over 35 million hours online, from more than 720 global media partners, it is little wonder blinkx sees itself as the world's largest and most advanced video search specialist, a bold claim for an Aim-listed, sub-£400 million cap.
The company's clever technology is called AdHoc. It searches online video in much the same way Google searches key words and is built on an exclusive license from its former parent. Autonomy remains blinkx's biggest single shareholder with a 12.8% stake. The FTSE 100 firm's chief executive officer (CEO), Michael Lynch, also sits on the board as a non-executive director with a personal stake of close on 22 million shares worth over £24 million at the time of writing. Even though both he and blinkx's own CEO, Suranga Chandratillake, have sold 1.7 million-odd shares between them this year, we believe the core growth story remains very much intact.
blinkx's strategy is built on using its vast library of video for third-party advertising campaigns, either directly through its own website or by licensing technology to partners in revenue share deals. Interestingly, www.blinkx.com last year broke into the world's top 10 most visited websites, while search volumes in the 12 month to 31 March 2011 rose 135%, peaking at over 44 million a day during the second half. This rapid growth is drawn against an online advertising market predicted to grow 40% a year through to 2014. blinkx will be able to leverage a much bigger user base thanks to its $30 million acquisition of Burst Media, an online publishing hub that reaches 57 million unique users around the world and 65% of the US population, according to market researcher ComScore. Then there is the mobile internet, itself a huge opportunity. American networking equipment giant Cisco Systems (CSCO:NDQ) estimates mobile data traffic will jump 39-fold by 2014, with 72% of that expected to be video-based.
The Burst Media deal is likely to take a bit of digesting with as much as 75% of the anticipated $29 million of revenues it should add this year to the March 2012 likely to fall in the second half. Nevertheless, revenues and profits promise to ramp up rapidly. In the year to March 2011 blinkx almost doubled revenue to $66.1 million, and the drop through to profits is such that it converted an $8.9 million loss to a $7.3 million maiden pre-tax profit last year. This year independent broker Canaccord estimates revenues of $126 million, and five years from now the equivalent figure could be as high as $320 million. This implies pre-tax profits going from $24 million this year to $108 million by 2016, dropping the price/earnings multiple from 38 to less than nine. Long-term forecasts could well prove moot given previous takeover speculation, but a 160p target is achievable and investors should buy now ahead of September's Annual General Meeting when renewed excitement could well take hold of the shares.
