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Jupiter posts weak 1q07 - Stock price sags
Jupitermedia posted weak first quarter 2007 results with a 2.5% increase in total revenue over the first quarter of 2006, but a simultaneous decline in operating profitability, especially from the Online Images division, which accounted for 80% of revenue in the most recent quarter. The company’s income from continuing operations swung from a gain of $2,833,000 in 1Q06 to a loss of $1,041,000 in 1Q07. The company spent $1.9mm in legal fees associated with the acquisition talks with Getty which ended with no deal. Even without that extra expense, however, income from continuing operations would have come in at only $859,000 for the most recent quarter, a decrease of 70% from 1Q06. The stock price dropped by 14% on the news to close at $6.17 at the end of the day on May 10.
Online images revenue grew at a rate of 5% for the quarter, year-over-year, while revenue for the online media division dropped by 7%. On a conference call with analysts, management blamed the declining overall gross profit margins on the online media segment. But the figures offered in the company’s press-release regarding segment profitability tell a story of severely deteriorating operating profitability in the online images division. According to the segment breakouts, while online images revenue grew by 5%, the combined cost of revenue and operating expenses grew by 19%. In the online media division, the 7% drop in revenue coincided with an 8% drop in combined cost of revenue and operating expenses. Management’s assertion that the gross margins on the images division remained stable, taken with a close look at the operating margins for the segments implies the operating costs for the images division skyrocketed from 1Q06 to 1Q07. Please see the chart below for the segment breakouts. (Click on chart to enlarge)
Management highlighted various initiatives and other reasons for optimism about the company. The company will launch a new Jupiterimages “superstore” web-site that will enable it to sell more efficiently to customers who now come to Jupiter via dispersed web-sites of various brands. Another technology initiative in the online media division entails a registration system for the 15MM visitors who come to the segment’s various sites (the writer assumes monthly) that will enable Jupiter to provide more value to advertisers.
CEO, Alan Meckler said the images division has experienced reasonable growth. The micro-stock site, Stock Xpert continues to grow and the company plans to invest more in marketing for that business. He believes micro-stock had some effect on the RF part of the business, but that conditions have stabilized. He pointed out that micro-stock growth along with a proliferation of RF content in the market creates greater demand for high-quality RM and RF imagery. Jupiter will continue to invest in such imagery, though RM margins are lower because less of it is wholly-owned.
Meckler also mentioned that third-party distributor revenue declined for Jupiter and he believes it will continue to do so. Improvement in direct sales will more than make up for that decline however. In fact, direct sales should easily make up for such a decline. When Jupiter makes a direct sale of an image to a client, it counts 100% of the sale as revenue. When a client purchases a Jupiter image from a distributor, however, Jupiter can count only 50% as revenue. Thus, for its top line, Jupiter needs to replace every two distributor sales with only one direct sale to stay even.
Other highlights form the conference call:
The company’s footage division is growing and should be profitable by the end of the year.
Jupiter is now the leading provider of RF music, owning more tracks than any other company. This business will become increasingly important to the company in coming quarters.
Guidance for the second quarter of 2007 calls for revenue of $36MM to $37Mm and earnings before interest, taxes, depreciation and amortization of $8MM.
Deferred revenue related to subscription sales has grown 13.4% from $12.7MM as of 3/31/06 to $14.5MM a year later.
Meckler does not expect Getty to take Jupiter’s imagery down form Punchstock, but if that were to happen, the effect on Jupiter would be immaterial.
Any weakness in the media division is at least partially the result of management ignoring the division, which they contemplated selling last year.
RM accounts for 15% of images revenue and is growing.
Posted in: Jupiter Media, News, Photographers, Stock Photo Companies
