Good morning! Apologies for being a little late today, as I was watching the election coverage on television until the wee small hours. Also I had a very interesting afternoon at the London Value Investor Conference yesterday, and have got copious notes that will turn into an article or two here in the coming week or so. Private Equity guru Jon Moulton was the stand out speaker for me - his talk was full of wit & wisdom, which I shall report back on at a later date.

 

 

 

Blur (LON:BLUR)

This would make a great case study of a typical over-hyped growth stock. It's been an absolute car crash for investors in recent months, because four factors converged;

1. Aggressive revenue recognition which has (presumably) been challenged by the auditors, and has resulted in accounts being late (always bad) and reported revenue falling way below forecasts.

2. Being heavily loss-making.

3. Running out of cash.

4. The above coinciding with a sudden and considerable loss of market appetite for risk.

 

Blur's business is basically a website where suppliers can tender for work in many areas such as marketing, design, app development, etc. So it's an online marketplace for services. Blur seem to take a remarkably high 20% commission, which as several people have commented to me is probably too high to be sustainable long-term for volume work.

Results for the year ended 31 Dec 2013 have been published today, and look pretty awful to me. Revenue was $4.8m, but bear in mind this is the gross project value on Blur's website, plus listing fees. So really I would suggest that the gross profit line of $1.16m is closer to what I would regard as proper revenue - i.e. revenue attributable to Blur.

The company generated a $6.5m pre tax loss for the year, and that's a proper trading loss, there are no exceptionals. Put another way, the company would have to grow turnover by a factor of 5.6 times, with no increase in overheads, just to reach breakeven.

Bulls will no doubt say that early stage growth companies are nearly always loss-making to begin with, and that it's the growth which matters. That's a fair point, but you cannot afford to have any bumps in the road along the way. So…

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