Tuesday, April 14, 2009

Destiny Media Technologies: Still Losing Money


Destiny Media Technologies (OTC BB: DSNY.OB) filed its 10-Q announced its fiscal second quarter (November 1, 2008 through February 28, 2009) results today: a net loss of $97,882 (or less than one cent per share) on revenues of $467,488. These revenues represent a 30% increase over the same period last year, but a sequential drop of 16% from Destiny Media's fiscal first quarter. In today's press release, Destiny's CEO, Steve Vestergaard said,

"We're expecting our rapid revenue growth to continue as North American label usage continues to expand and new agreements are signed outside of North America. The company expects to show an operating profit based on Q3 revenues which are projected to increase at least 30% over Q2."


In response to this release, reader Albert left the following comment on the previous post:

I looked back at your posts talking about DSNY in light of today's earnings announcement. What management has told you seem clearly not to have materialized in any meaningful way. They are not profitable. Were not in the first quarter as they claimed they would be, are again not profitable in the second quarter. I am beginning to have real doubts about whether they will be any time soon.

I would also like to look at how their clipstream revenue has improved, if at all. Back last july, you said the CFO told you that clipstream revenue would take a big jump in Q1 I believe. If I have time, I would like to see how that has played out.

Any thoughts.


I spoke to Destiny CFO Fred Vandenberg briefly this evening; he didn't have time to talk but said he'd call me back in the morning, at which time I plan to ask him some questions of my own. But here are my initial thoughts response to Albert's comment. In my conversations with him, Fred Vandenberg has generally been conservative, but Destiny Media's CEO, Steve Vestergaard, has clearly over-promised and under-delivered with respect to his predictions of profitability. For example, in this press release on July 14th, 2008, he said,

"We've built a foundation where we can confidently say we expect to be profitable by Q1 (Sept. - Nov.)


And in this press release on September 19th, 2008, he said,

"The company is not seeking external financing and is looking forward to imminent profitability.”


As Albert noted, Destiny hasn't been profitable in either its first or second quarters this fiscal year. In addition, in contrast to Vestergaard's statement last September, the company notes in today's 10-Q that,

The Company will need to raise additional funds to complete its business plan due to its significant working capital deficiency.


Steve Vestergaard has at least been eating some of his own dog food though: Over the last couple of years he has been buying stock in DSNY, most of the time at prices well above current prices.

Albert is also correct in noting that Destiny Media's Clipstream revenues haven't improved as predicted, and that's one of the questions I plan to ask Fred Vandenberg tomorrow (if anyone has other questions they would like me to ask, please feel free to leave them in the comment thread, and I'll try to get them answered if I get them in time). I've been focusing more on the company's Play MPE revenues though. I plan to ask Vandenberg about this as well tomorrow, but, offhand, it seems like the revenues ought to be higher from this.

If you look at the Play MPE Stats, there were about 160,000 "sends" in the last 7 days. That's in the ballpark of the number I saw when I checked this a few weeks ago, about 170,000. A quick back-of-the-envelope bit of arithmetic makes me think that either revenues ought to be higher going forward or that a significant percentage of these sends are internal sends that don't generate revenue for Destiny. Let's say sends average 150,000 per week going forward, so 150,000 x 12 weeks = 1,800,000. Let's say that these sends generate revenue at the lower of the two price points Vandenberg mentioned in our conversation last month ("Destiny Media Update"), $0.50. Assuming no internal sends, that would be $900k in quarterly revenue. Vandenberg did acknowledge in our previous conversation that some of these sends were internal, and he did decline to estimate an average amount revenue per send, but maybe I can get some more clarity on this tomorrow.

6 comments:

Albert said...

To be clear, I too am more concerned about their PlayMPE revenue, but wanted to see whether there may be any reason why that revenue has not increased the way some have expected over the last 6-9 months. Perhaps it might have been because of renewed increase on the clipstream portion of their business. Remember that in one of your previous posts, you said that management told you that clipstream revenue had decreased because of a focus on PlayMPE. I was wondering whether there may be any silver lining or positives to take from this somewhat disappointing quarter.

JK said...

Closed my position in DSNY today and bought CRY.

I love the DSNY concept.

But I'm not going to hold on to an overpromising, underperforming, money losing penny stock right now. If they become profitable in the near future I may re-enter. Somehow I doubt I'll miss any big move by doing this, should I want to buy back in, but who knows. Also, if the dollar collapses against the loonie due to high commodity prices and Fed dilution, as I anticipate, then it will be even harder for them to become profitable soon.

JK said...

^Theoretically the currency issue is not a major sticking point, but given this company's peculiar difficulty in turning a profit on their high margin services, the last thing they need is another headwind.

DaveinHackensack said...

Albert,

I asked Vandenberg about Clipstream when he called back today but didn't get the most detailed answer. I'll post my notes of our conversation shortly.

J.K.,

I can't argue with your logic, but after my conversation with Vandenberg today I think I'm going to give them another quarter.

JK said...

Yeah I'm not giving up on them completely yet, it just feels like dead money for the time being. This has been one of my few stocks I've bought that hasn't had a big rally recently, and the possibility of dilution to raise funds in a still unprofitable company leaves me with a bitter taste. I might miss a big move here but I think I have better prospects in profitable companies like CRY. Thought about buying your KSW also.

Will be interested to read your follow up post.

DaveinHackensack said...

KSW doesn't have the same potential upside, but it has a lot less downside risk than DSNY at the current price.

CRY looks like it has some interesting products.