PhotoChannel’s First Call: Company Rolling in Black Ink
August 29, 2008 @ 12:50 pm
After about 2 1/2 years of growth with their current business model, the management of PhotoChannel Networks finally held its first conference call in conjunction with the Merriman Equities conference the company attended this past week.
The call is very revealing and worth a listen. I’m hoping this first step marks a new policy by the company towards a more open disclosure and communication with the markets.
They announced Q2 numbers- the top line rose to $4.2 million for the quarter- a 231% increase over the same quarter in 2007. Losses were a bit higher as well, which primarily related to increased costs associated with new customer acquisition and their new Toronto based data center.
It’s a 45 minute call, but let me simply condense it for you with some of the highlights. The first and foremost best news I heard was the simple statement that the company was operationally cash flow positive today and expects to continue to remain in that state on a permanent basis. Therefore, no capital will be required to fuel operations. Cash is growing. EPS will be the next threshold for the company.
Secondly, I learned they were averaging about 21,000 uploads and/or transactions every day at the beginning of June. By the end if June, with the Costco deployment, they were averaging 30,000 transactions per day. Therefore, we can assume an additional 50% in organic growth, combined with moving into the best quarter of the year for more organic growth- pretty good stuff.
Revenue growth is outpacing expense growth at this time by a considerable margin- another major positive.
Their China initiative with Kodak did not get started in time for the summer Olympics, but they are now moving forward rapidly on 200 China locations.
On the application side, I heard one development which sounded exciting. They are testing a service with Hallmark in Europe that allows the user to design their own Hallmark Card, complete with text and images. You create it and order it to be sent. You can also select calender dates and arrange for future sendings throughout the course of the year for individuals who want to plan in advance. Great stuff if you ask me.
In short, everything I heard was extremely positive, and bodes well for a breakout in the stock as we get into the Sept to Nov time frame.
Oh- did I mention?- they will be bringing in a new CEO- I’m good with that move, since Fitzpatrick is basically CEO non grata day to day.
Here’s the chart:
It’s another fairly typical Bear Market chart. It sold off early in the summer, but has been consolidating for most of July and August on pretty low volume.
This is another stock I believe could make a strong run in the October to December time frame. You’d do well to accumulate.
The company desperately needs to expand its shareholder communications efforts, and hopefully this past week’s conference call was just a first step.
Comments and questions are welcome.
8 Comments
RSS feed for comments on this post.
Leave a comment
Line and paragraph breaks automatic, e-mail address never displayed, HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>
Isn’t this stock worth a lot more than a double from here. Not to long ago we were talking about $4 and NASDAQ listing. Not much has changed fundamentally. I am surprised this stock has gotten hammered as much as it has with the market. Do you think a buyout is possible down the road.
Editor: There has always been a lot of chatter about Kodak buying the company out eventually, which is why a lot of people believe they pay no attention to “spreading the word” to the financial community on the company. Is it worth a double? easily. The stock is absurdly oversold, and just like CGYV has been the victim of forced, irrational selling from hedge funds. Remember the $15 million deal they did at $2.40? There were about 10 different funds involved in that deal, and I’ll be at least half of them are either now completely liquidating their portfolios if not closing their doors. This will end up being a lifetime buying opportunity, I just can’t say when the carnage will end and the turn will come. I have been advising no long positions without a 6 month window in time.
Comment by tom — 10/22/2008 @ 6:58 am
How could this stock go from,4.88 to 2.00 when we got costco and sams club?
Mike: There’s the big question of the day. How could PNWIF- along with many other issues, trade to these absurd lows? Here’s your answer. The funds that participated in the $15 million financing are responsible. Just so you understand- here’s what’s happening out there. Many of the smaller funds are raising cash at any cost. It has nothing to do with value or upside. They are just selling indiscriminately because their investors are demanding redemptions. It’s cash at any cost, and it is creating absurdly low valuations and ridiculously oversold stocks. In fact, I have actually read some apology notes from fund managers to the Investment Banker on the CGYV idea- they are actually apologizing for having to sell. It is out of their control. It reminds me of the Dot Com demise in 2000 when many dot coms actually traded below what they actually had in cash in the bank. The good ones came back, and investors who bought those absurd valuations made a fortune. We are now moving through the process of battering these things into oblivion, and at some point they will start coming back to reasonable level. If you haven’t sold, a little patience might pay off. Their business is very robust. If you have some additional capital, you might want to add to the position by the end of this month. My money is going into CGYV- two big differences- CGYV is making more money, and CGYV’s business is not directly tied to the American consumer. However, I believe they are both trading a great valuations to make money.
Comment by mike — 10/1/2008 @ 9:11 am
Have you talked to management lately. At the investor conference this week they mentioned a trial they are running with facebook! This stock really got hammered this week however I took it as an oppurtunity and added more. Still expecting a big next two quarters.
Editor: yes, I have spoken with them. I am still expecting the next two quarters to show massive improvement and I expect the company to be cash flow positive on a permanent go forward basis. However, I believe there are two main issues effecting the stock. One- funds who put the $15 million in at $2.30 have probably been under a lot of pressure. Two- the CEO indicated their expenses would stay a bit higher than the market would like. I think the stock is worth a double from here, but it might take six months to get there.
Comment by tom — 9/19/2008 @ 10:18 am
what are your thoughts on this current sell off ?
Editor: Probably funds having to sell to meet redemptions.
Comment by andy — 9/10/2008 @ 11:34 am
Any thoughts on the recent price decline?
Editor: I thought the last quarterly numbers were pretty good, and the outlook seemed strong. Of course, their fortunes are tied to US consumers, so that’s a big minus. I would guess a bunch of the funds in the stock are getting hit with redemptions, forcing sellers who don’t really want to be sellers. It’s a sign of closing in on a bottom- when funds are forced to sell who don’t want to.
Comment by Anonymous — 9/10/2008 @ 8:57 am
Photochannel is about to have two breakout quarters and yet the stock is getting hammered?
Editor: Probably the funds who were in the financing getting hammered with redemptions, which puts pressure on the stock.
Comment by tom — 9/10/2008 @ 7:23 am
Do you see any short terms catalysts for price appreciation in pnwif stock? How will shareholder communication change? Thank you
Editor: I would love to see their shareholder communications improve. It has been abysmal to this point. I am optimistic that might be the case, as Fitzgerald indicated they would be hiring a new CEO- hopefully, that CEO will change the policy of communicating with the markets. The conference call they held was also a positive sign. It was the first in their history. On the minus sign, if they don’t improve their policy, and continue on their current course, we won’t get any numbers out of the company until the end of January, which could sabotage their opportunity to move up during what could be a time of the year when stocks start to trade better. We’ll see. The numbers should be absolutely fantastic between now and the end of the year.
Comment by Daniel Shaub — 9/4/2008 @ 3:31 pm
Let me start off by saying I am VERY bullish on this company long term but…
I am dissappointed with the continued increase in costs and the fact that the company mentioned cost would NOT go down next quarter (they said cost growth would slow). I think they need to do a better job of explaining where all the extra revenue is going. Also, no mention on their potential to steal the Wal-Mart US business from snapfish.
FYI - The CEOs name is Fitzgerald not Fitzpatrick. Also, the Hallmark website has been up for a while now so investors could see what they are offering.
Editor: Thanks for the correction. Quite right- one would think costs could go down, but he wouldn’t commit to that. However, just the fact that they finally did a call is a minor miracle. They were at a conference at the time, so that was promising as well. The best part I heard?- New CEO- hopefully, their policy towards shareholder communication will now change for the better. I personally took my position down to 10,000 shares since they didn’t seem to be willing to make any efforts to reach out to investors.
Comment by Anonymous — 8/29/2008 @ 2:12 pm