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Stockhouse
Q2 Call: Q&A Tells More Than Results |
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I
hope you were in on Stockhouse's
(OTCBB: STKH) conference all and webcast yesterday afternoon. If
not, don't worry - I was on it for you. However, I don't know if I'll be
able to do it justice...particularly the question and answer
session.
 The
numbers, of course, speak for themselves.
The
company's total revenue last (second) quarter totaled up to $3.26 million,
versus $3.7 million a year ago, and a little under last quarter's (first)
revenue of $3.5 million. Ad sales fell from $1.09 million to $700K on a
qoq basis. Ad sales in Q1 of 2008 were $875K.
As
for earnings, second quarter's EBITDA was -$1.69 million, thanks to $3.5
million in operating expenses. For the same quarter a year ago, EBITDA
was -$851K, and operating expenses came in at $2.9 million. For reference,
the first quarter's EBITDA was -$1.5 million, thanks to $3.6 million in
operating expenses.
What
happened? More than $800K in impairment charges didn't help, but the
company is still incurring a lot of one-time expenses from the new site,
recent acquisitions, new systems and software, and re-arrangement or elimination
of redundancies.
After
the call I was able to take a closer look at the 10-Q, as well as talk
to some of the Stockhouse people. The 'rest of the story' came to
the surface.
The
new Mobile StockStream product wasn't launched until July; sales of their
pager-based data subscription tapered off significantly in the meantime,
but
weren't able to be offset until the current quarter. Subscriptions
of StockStream (web-based) were actually up 43%. Point being, the comparison
between then and the future may be apples and oranges.
As
for ad revenues, they were a little depleted in the sales (and sales
leadership) ranks, and the ad-server wasn't put into place until after
the quarter ended. I'm not entirely sure how that helps improve ad revenue,
but it is expected to create more of it. And, that's clearly a big
opportunity to recover some missing sales.
I'm
not saying any of this to defend the company. In fact, I think these one-time
expenses are really getting frustrating - good thing the company says they're
mostly out of the way. I think you just need to know the fundamental differences
between the past and the future, if you're to come to a sensible expectation
about Stockhouse.
With
that as a backdrop, the company still expects to be profitable in
Q4, though not necessarily in Q3.
The
results are what they are. You'll have to decide for yourself whether they're
ok or not (I don't make the news - I just report it), and you'll
have to cross reference that with where they're going ...particularly with
ad revenue and wireless/mobile subscriptions. Keep reading though; the
real
value of the call comes from the discussion between the company's management
and investors after the results are reviewed.
As
much as I'd like to be able to include all the questions and answers from
the Stockhouse conference call, I can't. There's not enough room here,
and I can't write fast enough. A transcript will be available, but that's
going to be pages and pages.
 Instead,
I'll just paraphrase the important questions.
(Also
note that I omitted a lot of great questions because the question, while
specific, prompted a wordy and somewhat-ubiquitous response. I really think
you need to hear the call for yourself for those Q&A's to mean anything.)
Q.
Your cash burn is bigger than ever [operating expenses, not cost of revenue],
and sales were lower. How can you get to a positive EBITDA by Q4 at that
rate?
A.
Bear in mind much of that expense line was from one-time costs. Operating
expenses should start to go lower after Q2, since many of the contract
renegotiations took place during Q2.
Q.
You ended this quarter with an average number of visitors to the stockhouse.com
site at about 700K per month. That total was a little higher during Q1,
and reached higher than 1 million per month in Q4 of last year. How do
you explain the drop off?
A.
With the new site, a lot of bookmarks and back-links no longer worked.
Plus, being in a bear market has hurt general interest in market-related
activities. We're currently working with search engine consultants to increase
traffic.
Q.
The Stockhouse story started out as a revenue growth story, but has since
turned into a cost-cutting story. Which is it?
A.
It's not one or the other. We're trying to grow [long term] profitability,
but we're trying to do so profitably. We can't invest in all ventures at
the same time, so we're focusing on doing one at a time, and doing it well.
Q.
[This is an aggregate of several question.] In the previous conference
call you mentioned you expected total costs would be [on an ongoing basis]
$3.6 million. Any revenue above and beyond that would be profit. Yet, we
keep seeing considerably higher expenses. When is it likely to end?
A.
There are several components to the answer. Yes, $3.6 million is still
the break-even point; if revenue exceeds that - and if gross margins are
60% or better - we expect to turn a profit. There are still some one-time
cost reductions that will be booked during Q3, but we don't expect to book
any additional expenses in Q4. Thus, we still think Q4's EBITDA will be
positive.
There
were more question, and more answers, I think you'd want to hear...especially
if
you're an owner. Like I said above though, some of the questions and answers
spawned some tangents, that lead to philosophical discussions, and so on.
To try and make sense of some of them here would just be pointless - you
really need to hear the call for yourself (which you can, from stockgroup.com).
That
said, if I had room for an opinion here in the newsletter about the quarter
and
their responses to the questions, I'd love to leave 'em here. Unfortunately,
I can't in this edition - not enough room.
HOWEVER,
yes,
I will have some publicly-available thoughts and observations I absolutely
want you to hear - from me - about this quarter and the company's
future.
I'll
just leave you with this teaser...this quarter was pretty much more of
the same from Stockhouse - the company is still working through some growing
pains. Take that however you want to.
Be
sure to check the blog
later on today for the op-ed stuff, once I've had time to really collect
my thoughts and come up with a way of voicing them succinctly.
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