Isentia (ISD) shares have slumped by a record amount yesterday after the market intelligence and media monitoring company shocked investors with a profit warning.
They closed down more than 26% at $2.38 as investors belted the company for the surprise warning at yesterday’s annual meeting in Sydney. Analysts had been mostly upbeat about the small cap stock, with five rating it a ‘buy’ and one a ‘hold’, as well as an average price target of $4.18.
But that will change today when we can expect a flood of downgrades.
Shareholders had heard Isentia CEO John Croll tell the meeting that the board expected first-half earnings before tax (EBITDA) will be lower than last year’s and full-year revenue and EBITDA (for the June 30 year) will likely grow in the “high single-digit” range.
The company said that "due to decisions made in regards to strategy, new business development and client retention in FY17", the company’s content marketing unit would report an overall loss.
Part of the problem is the company’s content marketing business, King Content, which it bought last year from founder and CEO Craig Hodges. The deal was worth $48 million, depending on hitting a number of targets over five years.
In 2016, content marketing represented 7% of Isentia’s earnings but this year the business lost revenue growth due to poor decisions on strategy, business development and client retention.
CEO John Croll says the decisions will see content marketing report an EBITDA (earnings before interest, tax, depreciation and amortisation) loss of about $2 million in the first half of 2017.
He says a new organisational structure has been put in place, integrating the King Content sales team with Isentia, and a new chief executive for King Content will be found. "For the three years beyond FY17, Isentia’s 2020 strategy is expected to deliver strong revenue and earnings per share growth,” Mr Croll told the meeting. But investors aren’t interested that far forward.
The company posted a 23% increase in revenue to $156 million for 2016. Underlying net profit after tax was up 16% to $33 million.
After yesterday’s slide Isentia shares are down 41% for the year, or 50% from highs of $4.95 that were hit in January.
