At long last- PNWIF reported its year end numbers- pretty timely you say? Already out just one month into the calender year? Not so fast.
PNWIF’s fiscal year ends at the end of Sept- therefore, we are finally seeing the audited numbers from Sept ’06 to Sept ’07. If they were a US reporting company, they would have had until the end of December- since their primary domicile is Canada, they follow Canadian Regs, which as a small company gives them an extra 30 days to get their filing in front of investors. I believe this length of time is a weakness of the company- they should get better at reporting in a more timely manner.
On to some major pluses. First and foremost, today’s press release notes PNWIF has landed Sam’s Club as a customer. This is big stuff, and I’ll explain why. Costco was the first, and now Sam’s Club is the second defection from the Hewlett Packard (NYSE: HP) platform, to tiny, unknown PhotoChannel’s platform. The bottom line- little PNWIF has now pirated both Costco and Sam’s Club away from HP- that’s a huge coup, and suggests several positives.
1. I believe we can assume the PNWIF solution simply works better than HP’s- which is really saying something with HP’s huge resources
2. The addition of both of these customers will have a major impact on PNWIF’s future- once implemented, the top line should grow quite dramatically
3. Could other HP customers be far behind? The first two had to be the hardest.
There are a few other highlights very favorable for shareholders in the results. Top line revenues grew very strongly- up 84% over the previous year to $7.5 million- these results only include 2 months post Pixology acquisition.
Secondly, PNWIF migrated transactional revenue- anotherwords the revenues they generate from photofinishing orders- from 41% of revs in 2006 to 64% in 2007- this is a major positive for the cash flow, as transactional revenues have a far higher margin for the company.
The company also booked losses of $6 million. Digging in a little, you can make some adjustments to evaluate the over all health of the business. $1 million was one time acquisition costs- $1.4 million was non cash dep and amort- $1.8 million was absorbed from the dollar loses value against the Canadian dollar- $600k was non cash stock related- Operationally, the company really lost about $1.2 million, which is acceptable considering the level of growth and corporate activity.
Looking out over the coming months- here’s some game changing events which could have a major impact on the stock:
Q1 numbers should be out before the end of February- Q1 is their best quarter of the year as consumers engage in lots of photofinishing.
PNWIF is now in the process of migrating all the data for both Sam’s Club and Costco to their servers. Here’s how it works- say you have a photo album you have uploaded to the web at Costco. In the past, your digital images would have been stored on HP servers- they now have to move over the PNWIF servers- as the consumer, you don’t see it, but it is happening in the background.
Costco and Sam’s Club will start generating revs for PNWIF sometime in the April to June quarters. My guess- jointly, they will generate about $10 million in annual revenues for PNWIF- this will be very high margin business- all transactional. As Online to Retail photofinishing grows (this is where you upload your photos online, order prints, and go into the store to pick them up in 1 hour), that $10 million number will grow as well.
So- look for a strong Q1, followed by a traditionally weak Q2 and some expenses associated with implementing the two new clients, and lots of hoopla around flipping the switch for Costco and Sam’s Club sometime in April or May.
I suspect PNWIF will turn profitable in fiscal 2008 and stay that way on an ongoing basis. I believe the top line numbers will at least double again. As they make the turn into fiscal 2009, they should be able to achieve annual revs in the $20 million range, and be very profitable.
Here’s a chart to show how the stock is behaving:
This is a very similar chart to SPKL- this one is an ascending wedge, which suggests the stock will grind higher to the point in the wedge before breaking out or breaking down. This is a weekly chart going back to early ’06, and showing where the OTC Journal starting covering this idea at $1.80 in October of 2006.
In this lower volume environment, there are probably a lot of charts that look just like this, particularly if the company is delivering. Investors are reluctant to part with their shares, but new shareholders are a scarce commodity.
This is another one that should have its day once volume returns to these smaller stocks. I would love to see it grind up to $4, as then it would have a real shot at a NASDAQ listing.
Here’s the wild card- there are two horses left in the HP stable- Wal Mart USA and Walgreens. They are now in Sam’s Club- could WalMart- the largest company in the world- be the next to defect? The have WalMart Canada already. NASDAQ listing? A number of strong possibilities could effect the stock price to the positive.