PhotoChannel has been quiet of late, but interesting news was out on the company early this week, and it’s worth having a look at what it could mean to shareholders.
In case you missed it, PNWIF disclosed it had completed a $15 million private placement. The company sold units at $3.40- each unit contained one share of common stock and one warrant convertible into common stock at $4.
The market seems to have viewed this event as a very mild negative- the stock was around $4 when the news came out. Today it closed at $3.78. It could have drifted down to that level in concert with the overall market.
In my view, there are both positives and negatives associated with this financing. Here’s a list of positives:
- PNWIF will now have $20 million in cash and no debt. This strong balance sheet should open up new opportunities with potential customers who might have been reluctant to do business with the company due to its limited resources.
- PNWIF now has the capital to accelerate some of the other digital products it is developing- i.e. music download kiosks.
- PNWIF will now qualify for both a NASDAQ and a TSE listing. The company should be moving forward on both fronts.
Here are two negatives:
- In my view, the biggest negative is the warrant associated with the unit. The warrant provides and incentive for the participating funds to sell the stock as soon as they can. If the funds can sell their stock for $3.40 or more, they can keep the warrant risk free and still have the upside. Open market buyers don’t have that advantage.
- The dilution is a negative. This financing represents nearly 4.4 million shares of dilution, all of which might be for sale in pretty short order.
On the plus side, the price of the financing establishes a down side of $3.40 – my guess is it probably won’t trade at or much below that level. After all, $15 million of pretty smart money was willing to jump in at $3.40.
Another possible plus- the participating funds could be open market buyers. We’ll have to wait about this one.
So- buy, sell, or hold? I would call it more of a buy than anything. Clearly, $15 million just went into this stock, and those investors believe they can make money from $3.40. So, why sell it at $3.80 if the big money loves it at $3.40?
Their balance sheet will open up some new opportunities, and they could start popping up. Stand by for more information, but for the time being I believe this week’s event makes this stock a buy.
Comments and questions are welcome.
It took PNWIF forever to announce Kmart deal.
They still have to up date their web site.
Why don’t we see more positive PR for CVS..walmart..etc.. Did they get any new Walmart account in South America??
Is Walmart unhappy with Snapfish???
Editor: Now that the funding is behind them, I believe you will see more info on business expansion.
I believe your assessment is RIGHT ON with the recent private placement for PNWIF. Well put on the possitives and negatives. See you at $6.00!
Editor: Hope you are right on the money. I love the possibilities for new big deals coming their way. Don’t love the technical picture in the short term.
I have held bought sold bought this stock for over 5 years. I personally think this is a sign of bad times to come. We have bankrolled the company board and unfortunately it is my opinion that they will probably use the money for expenses that is likely to wipe the entire financing out within 23 months.
I think the time is too late. They lost the oppurtunity to make the run. Technology has caught up. We are now living in the world of instant gratification and developing pictures is old time. I remember when we would be happy to read “printed on kodak paper”. Today we are sharing photos on ipods, cell phones etc. The new paper is the digital screen. Welcome to reality. These stores are only signing up with us for the convenience of their dinasour customers who eventually will be extinct. Sorry, but this is the time to get out. If we were doing something so great….we would have been bought out by now. Remember, instant gratification. This model is dead. This stock is going to sink in my opinion as the Board eats at the financing as it has done in the past.
Editor: If you are right, you have to admit it has been a nice six months for the stock. However, I believe you are wrong. Thinking people won’t develop pictures and put them in photo albums or on the wall is ludicrous. This is simply the next week getting down to housewives instead of techies. It’s just like saying there was no future market for cell phones once the wealthy top 10% of the population had them. They just got cheaper, easier to use, and found their way through all of society over 20 years. As far as the money- look for the company to use this money to expand with more retailers and launch new digital products- the new products will included music download kiosks in major retail chains.
Concerning the last comment. The scrapbook business alone is huge. I do have some experience with non-city folk and they LOVE crafts such as scrapbooking. On another note, photo gift are another area of growth. Then, think about the music kiosks … and who knows what other digital content can be served up there, movies, games, exclusive content, etc.
Editor: Thank you for your contribution.
I’m a bit mystified that PNWIF isn’t acting better today with the announcement out of the new partner/channel. Several things cross my mind. Are the holders of the 15 million dollar purchase still selling? If so, why? Does this pull PNWIF away from its low capital model, which is/was one if its great differentiators? Will they be using the 20 mil to buy kiosks, etc. or will they lease them?
Whatever the reason, what I look at as good news isn’t being greated as such by the market and hence I wonder what I am missing. Comments appreciated.
Paul
Editor: I believe the concept of the recent financing is still being absorbed psychologically by the market. I think it will take new deals with major names to get some traction in this one again. In the meantime, I think the stock is trading great. It was entitled to pull back and trade sideways for a while, and watch it start to behave better in the next strong market.
I believe I saw a clause in the warrant issue that allows a shotgun repurchase of the stocks by the company if the share price goes above $6.00.
“…The Warrants include an acceleration provision pursuant to which, if the volume weighted average price of the common shares over a period of 30 consecutive trading days exceeds US$6.00 per share, the Company will have the right to accelerate the expiry date of the Warrants to a date which is 20 business days after the date the Company provides written notice to the warrantholders…”
Editor: They can raise more money that way and get the warrants converted and out of the dilution picture.
According to quantcast.com, here are some stats for the sub domains of http://www.pnimedia.com are:
walmart.pnimedia.com 5.9%
kmart.pnimedia.com 4.4%
uploads.pnimedia.com 3.0%
brookseckerd.pnimedia.com 2.9%
photothis.pnimedia.com 1.5%
Separately, cvs.pnimedia.com shows over 115,000 unique visitors per month – definitely the lion’s share of the traffic.
Editor: Thanks for the contribution. I believe PNWIF is probably going to $10 late this year. The die is cast, and the company is doing great from everything I hear.
I expected some reaction from the market when Photo Channel anounced the purchase of that UK company.
Market Reaction : Ho Hum.
Have you any comments on this?
Editor: I should publish something on it. I don’t think the market’s reaction was so ho-hum. I was very glad to see the stock did not sell off. Typically, the acquired company goes up in the short run, and the acquirerer goes down. I really don’t have enough information to comment at this time, but will when the time comes. There were no numbers disclosed.
On Yahoo today..a PR showing annual #s..When I tried to get their quarterly financial #s….it doesn’t show anything??
Why put out an Edgar Online Financial if you don’t have any #s to show???
Editor: I caught that too, and I have no idea why it came up. They have not disclosed March quarterly numbers yet.