Is Blinkx only worth its net cash?

Few companies have had a year like Blinkx. Shares in the video search engine have plunged by over 80% in 2014 to 30p, hammered by a string of profit warnings and a hugely damaging blog from Harvard Business School professor Ben Edelman. Well, they've warned again, and with first-half profits wiped out, the business could be worth little more than the cash in its pocket.

Blinkx had already flagged up a sharp slowdown in revenue growth and now expects half-year sales of just $102-104 million. Last year's $18.1 million (£11.15 million) adjusted cash profit will disappear, too; management expects to only break-even during the period.

Thankfully, the company still has $115 million of net cash, currently worth 18p a share. "This should represent a realistic lower boundary for the equity as the market absorbs fresh negative news," says Citi.

Of course, bosses remain optimistic. "Blinkx has seen sequential month-on-month growth since July, and management believes the company has reached an inflection point. Mobile remains a high-priority area for operational and strategic investments and is expected to contribute approximately 20% of revenues during the period."

However, if Blinkx isn't making any money, cash burn could become a real problem, and then there’s the risk that net cash - and the implied cash value per share - will fall, too.

If the first-half performance is any indicator, Citi reckons consensus forecasts for full-year revenue of $255 million will fall by about 18% to $210 million, down 15% on last year. It wouldn't make a cash profit, either. The City had been hoping for $25 million.

Broker Peel Hunt likes Blinkx's historical cash profit multiples, and while the profit slump is "alarming," there may be hope yet. "Investors will be aware of the cash in the business, together with still-impressive revenue scale. Common sense dictates to us that Blinkx must have some attraction to a corporate buyer."

Blinkx has an unenviable track record of disappointment, and investors will question management's optimism. Avoiding further deterioration in profitability is critical. If Blinkx stays in the black, or thereabouts, hope remains. If not, and without a white knight, there's further trouble brewing.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.