Digital Dream Teams Not So Sexy After All As Money Talks and Executives Walk
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Richard Webb - Going, Going Gone..
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ALL is not well in the so sexy world of digital marketing where a couple of the bigger companies are learning that it is much easier to spend money than earn it.
The best (or worst) example is BlueFreeway, where the executive body count is beginning to resemble a bad day in Iraq. January saw the departure of three directors including Chief Executive Officer Richard Webb and company secretary Kenneth McDonnell, who just a few months earlier announced a net profit for ’07 financial in the region of $4.5m.
Yet by late January Chairman Greg Daniel had discovered spending blow-outs of a magnitude that required executive departures and immediate cost-cutting… Hmmm, something not quite right here – probably not surprising though when you consider the BlueFreeway, founded not much more than a year ago, has been spending like a drunken sailor, buying into 25 companies in less time than it takes a baby to walk.
Look to the half year results for further details. Also spare a thought for BlueFreeway member companies like search marketer Cogentis, which sold a 20% stake to BlueFreeway for 70,000 shares in late 2006. Last July these were worth $175,000, but would now fetch under $40,000. Then there are the investors who bought into a rights issue at $1.70 in October … just before the shares fell to their present level of around 60 cents.
Meanwhile, another amalgamator, Q Limited, which has also cobbled together a slew of digital outfits including search marketers First Rate and Freestyle Media, is having profit problems of its own.
The share price has plunged 150% and is now around three cents. It has just recorded a loss before interest and tax of $137,000 for the six months to December 31. The previous financial year it lost $1.2m before some tax benefits dragged it into the black.
Looking forward, Q Limited says it wants to buy more companies yet is running out of cash (though it still has around $6m in the bank). The only way it can get more cash is to ask investors who have been burnt in the past – plenty bought shares at five cents in November – so you’d have to think that well has run dry.
Given these circumstances, and the increased cost of debt, the best approach for Q Limited senior management, may actually be to focus on the basics and earn some money.
And that is possible, because, like BlueFreeway, there’s little doubt that some of Q Limited’s member companies are doing very well.
But can the respective head offices deliver on the digital dream? Based on past performance, the jury is out on that one, although there is some smart money buying into BlueFreeway at the present prices.
Search Engine Room: February 27, 2008
