Thursday, January 15, 2009

PhotoChannel Update


Reader Norman L. asks via e-mail about my thoughts on this week's release by another Edelheit pick, PhotoChannel (OTCBB: PNWIF.OB). My first thought is that it would have been helpful if the company broke out its Q4 results, so we could see if management's (and Edelheit's) prediction that Q4 would be EBITDA-positive was correct (On the Value Investors Club, Edelheit estimated Q4 EBITDA of $0.10 to $0.12 per share.). On PhotoChannel's conference call, management reiterated its prediction of positive EBITDA in Q4 and positive EPS in Q1 2009 though.

Aside from that, my thoughts:

- 127% year-over-year increase in revenues is encouraging.

- 107% year-over-year increase in expenses wasn't encouraging, though my concern is ameliorated somewhat by a) most (~75%) of these being non-cash expenses; b) management's claims that much of the cash expenses represented start-up, non-ongoing, costs related to new clients.

- $3 million in cash and no debt is encouraging.

- Let's see how Q4 EBITDA compares with Edelheit's estimate, and let's see if the company does finally turn a profit in Q1.

The banner image above is from PhotoChannel's website.

18 comments:

Tickl me Elmo said...

Another record year...

Another loss.


What could be better?

Albert said...

Definitely thought it's really annoying that they didn't break out the Q4 numbers. I think DSNY did the same thing though back in October or whenever it was it announced its year end numbers. I've been totally slammed at work and haven't had the chance to listen to the call, but was planning on doing so maybe tomorrow or next week.

Anonymous said...

Helpful comments... although I don't own it. But, why the constant comparison to Edelheit estimates? Take responsibility for your own picks. All in all, seems like an interesting idea--although I can't get my head around the competitive advantage and what type of cash generation can be expected.

Albert said...

Probably because it was Edelheit who first turned us on to the stock with his VIC write up. Or at least, that was the case for me, and I think it was for DaveInHackensack too. I followed up and Edelheit's numbers seemed to check out. It was essentially his thesis that caused me to buy the stock. Like Joel Greenblatt has said, you can't cover every stock, so there's nothing wrong with stealing people's ideas...

Stockdoc said...

Someone is again posting as me (Cannot figure out why the whole world is obsessed with a poor dental hygienist)

Grrrr..I am going to kill this person...

errrr...where are my glasses and dentures?

ndl11 said...

Wonder if Edelheit has given up on the stock or forced to liquidate his fund since he has not commented on DSNY or PNWIF

DaveinHackensack said...

Anon,

No one but me is responsible for investment decisions I make. I've never claimed otherwise. I'm interested in the accuracy of management's predictions and Edelheit's estimates for fairly obvious reasons: in the case of management, if their predictions for Q4 and Q1 prove correct, it will lend credibility to the rest of their forward-looking statements (and if they prove incorrect, will of course detract credibility from them). In the case of Edelheit, if his estimates prove correct it will lend credibility to his investment thesis (and if not, it will detract credibility from it).

"Probably because it was Edelheit who first turned us on to the stock with his VIC write up. Or at least, that was the case for me, and I think it was for DaveInHackensack too."

That was the case with me as well.

DaveinHackensack said...

"Wonder if Edelheit has given up on the stock or forced to liquidate his fund since he has not commented on DSNY or PNWIF"

That's possible.

DaveinHackensack said...

Incidentally, Edelheit got heckled on his blog re PhotoChannel:

"DSNY is STILL not profitable. PNWIF has collapsed, net loss increasing.

Don’t drink the Koolaid of hype on Over-the-counter penny stocks. Its very amateur."


[...]

"PNWIF, while not yet profitable, paid the otcjournal.com for coverage (stock pumping). Wise use of cash. Not.

Look at the archives in the otcjournal.com to see how past “covered companies” have faired. Most have gone to 0.001

But at least, thanks to stock pumping, the otcjournal reccommended this company when it was about a buck, so smart sellers made some money."

Anonymous said...

Albert--I totally agree on stealing other peoples ideas. Dave-- I hope I don't come across a heckling you! I own DSNY and have appreciated all you comments on the name. I haven't done much work on Photochannel. Philosophically, I don't see the purpose of overly precise estimates or predictions in value investing (seems to provide a false sense of control), other than getting a handle on general profitability, Free Cash Flow or Net Asset Value.

DaveinHackensack said...

Anon,

I don't consider your comments heckling. You make a good point about the false sense of control provided by overly precise estimates, but in the case of Edelheit's estimate, he gave a range, so it wasn't overly precise. In any case, I'm more interested in seeing both of these companies start generating profits -- that, more than hitting a specific number -- would help support the investment theses for me.

Anonymous said...

DSNY sequential sales growth was weak but I don't know the significance of this. They surely have some "religion" on the cost side--nice to see.

Speaking of the devilish way of "certainty"...
Interesting piece by Morningstar- "Our Biggest Mistakes in 2008"
http://news.morningstar.com/articlenet/article.aspx?id=270982

DaveinHackensack said...

Interesting article, Anon, though it seems Morningstar could have avoided some uncertainty (and losses) simply by avoiding companies with net debt.

Anonymous said...

Hey Hackensack, Q4 numbers arent a mystery (YTD 9/30 - YTD 6/30 = Q4). I did the math real quick, PNWIF IS EBIDTA positive in Q4($603,068 to be exact) which comes out to almost $.02 per share. You can even come up with quarterly cash flow numbers if you really wanted too...

~Dumont

ndl11 said...

Edelheit has update on VIC re:4Q

DaveinHackensack said...

Thanks for the heads up, ndl11. Here's Edelheit's comment from the VIC:

"Thought I would update everyone, that PNWIF reported good results that still mask what is going on, but that th numbers in February will finally show what I have been waiting a year from them to show. Ridiculous sales growth combined with positive cash flow and tremndous cash flow at that.

The company reported triple digit gains in revenue and that in the September quarter they generated $1 million in EBITDA.

I expect that for the December quarter they will announce at least $8 million in revenue and over $3 million in EBITDA. To put that in perspective consider that the company reported $17 million for all last fiscal year.

This company continues to grow like a weed and the proof will finally be evident and plain to see when they report their numbers at the end of February.

I'm looking for $0.25 in cash EPS (excluding non-cash amortization) [for fiscal '09], making the stock trade at 5 times earnings. Cheap. cheap."

Sylvester the Cat said...

Cheap. cheap.

A little birdie told him.

Anonymous said...

thats funny, I see on the report that PNWIF has NEGATIVE 1M in EBIDTA for the September quarter, whose right Edelheit or the report?