An image of failure

[click image for larger version]

Above is a graph of the BLNX share price over the past couple of years or so.

As you can see, it started from a low base, then climbed as excitement about the online video sector - and BLNX's place within it - grew. It reached admittedly heady heights (annotation 1 on the image above) - roughly a trailing PE of around 100, suggesting that  high growth was priced in. But hey, that's OK, right? This is BLNX, and they have competent management that have always delivered their figures, and they're in the online video sector, so they must be growing bonkers fast.

Right?

Then came November 2011. In a three-day period the company announced the sale of 7m shares at 134p each (we never did find out who to, but presumably Institutional Investors), a sale which only took a couple of hours and presumably was therefore well-received; the announcement of the interim figures; and that conference call with analysts (at time of writing you can still download a recording of the call on Blinkx's Investors page). Go and listen to it and make up your own mind, but my takeout from that call was as follows:

1/ Growth at the core BLNX video-search business appears to have slowed very significantly
2/ The company management (in the form of Chandratillake) cannot or will not identify how much of the earnings relate to the Burst network
3/ It is clear (to me at least) that Chandratillake had not prepped for questions about Burst - to these ears at least he sounded unrehearsed, hesitant, uncertain, defensive, shifty.

Not surprisingly the markets took fright. Over the next ten trading days  the company lost two-thirds - TWO-THIRDS!!!! - of its market cap, from a high of around 160p to a low of about 50p. Those who bought at 134p two days before the interims must have been much less than happy. Very much less.

However, the one things that investors held onto was that on that call Chandratillake said that he was 'comfortable' with the FY figure of $124m he had previously predicted. 

Fast-forward to April 2012, the day after Easter Monday. And BLNX release a Trading Update RNS (effectively an earnings warning - notation 2 on the image above) that revenues for FY will not, in fact, be $124. It won't even be the analyst's concensus of $121.5m. It will in fact be in the region of $114m.

So far from what investors hoped was the case - that the company would exceed the $124m to demonstrate that they really are growing like crazy - the exact opposite seems to be true: the wheels seem very much to have come off the BLNX business model - either that or the management team are incapable of delivering the growth they had themselves predicted. Chandratillake might say in that RNS that "We believe this is [figure of $114m] a significant achievement" but nobody seems to agree with him (certainly I don't), and the price falls further, to below the level at which it floated in May 2007.

Which brings us to where we are now. And it is very much my view that BLNX needs a change of senior management. I'll detail why I think that in a future post, so stay tuned...