PhotoChannel Update

On Wednesday, PhotoChannel (OTC BB: PNWIF.OB) issued a somewhat Delphic press release ("PhotoChannel Announces the Launch of the PNI Open Access Project"). In it the company announced,

The PNI Open Access Project has been created for non-PNI customers to be able to take advantage of and utilize the power of the PNI Platform's "Routing Tier" that currently delivers millions of images and orders from PNI hosted websites to its customer's stores and production facilities.

There was nothing in the press release about revenue projections related to this project, or the reactions of PhotoChannel's current clients to it, so reader N.L. did some legwork on this and was kind enough to share what he found with us.

The first time N.L. contacted the company today, investor relations forwarded him a morning research note from Merriman Curhan Ford, which offered no specific insights into the Open Access Project (beyond some general speculation about the size of the potential market opportunity, e.g., the number of Facebook users), but did offer some general guidance on PhotoChannel. From the research note,

We expect strong December quarter results next week, where we are projecting revenue growth of 99% coupled with the company turning profitable with $0.05 in EPS, as well as a sequential more than doubling of EBITDA (going to $3.7M from $1.7M in 4Q08). In our opinion this will be the quarter that we (and everyone else) have been waiting for – the emergence of PhotoChannel into profitable territory. Not only did PhotoChannel generate same-store sales of approximately 40% in the December quarter, but the company is also now experience a solid revenue ramp with its newest retail partners, Costco USA and Sam’s Club.

·Reiterating Buy. In our opinion, PhotoChannel is poised to become a leading provider to the digital photofinishing market by offering a fully integrated solution to retailers — having already locked up most of the top photofinishing retailers in the U.S., Canada and the U.K. – with global digital print revenues estimated to eclipse $100B by 2010. We continue to believe using a 15-20x P/E multiple is conservative and achievable—yielding appreciation potential to the $4.25-5.50 range on our FY10 EPS estimate of $0.28.

Expecting a double-digit multiple on any stock in this secular bear market seems a tad too optimistic to me, but it would be encouraging to see PhotoChannel become profitable and continue growing revenues.

N.L. also checked Issambres839/Aaron Edelheit's comment on Value Investors Club, but Edelheit had no specific information either and instead offered similar speculation as the Merriman analyst. After contacting PhotoChannel directly again, N.L. got this vague response:

This is just an "opportunity" for PNI. The company will go into more detail on the Feb 25 conference call.

N.L. noted in an e-mail to me that the recent positive performance of PhotoChannel's stock has been in spite of the overall market weakness (e.g., closing up about 9% today; see the chart above).