blurGroup shares crash, revenue recognition issues, results announcement delayed

(Note to Picture Editor - no, not THAT Blur Group you idiot!)

Ouch.

Last Thursday, blurGroup announced a delay in publication of their 2013 annual results and that revenue from some projects in 2013 would not be recognised until 2014 and beyond.

"Due to these longer timeframes, the board has taken a more conservative view of project revenue recognition with several larger value projects extending over several reporting periods or years and therefore a significant proportion of the revenue associated with project bookings achieved in 2013 will be recognised in 2014 and beyond".

The company therefore predicted revenue for 2013 between $5.3m to $5.6m, compared to $2.8m in 2012, but way below the $10 million predicted by the brokers.  Full year results will be announced on May 20th, not this month as expected.   The result was the shares crashed 41 per cent before closing 172.5p down at 280p. They peaked at 795p in January, although at 280p they are still at twice the level they were a year ago.

Well, what a surprise. We’ve expressed doubts before about aspects of the business model here, although we also like certain aspects of the business. But what is worrying for investors (not necessarily users), along with the delay and the whole revenue recognition issue, is the opaque nature of revenues. Much of the PR coming from the firm focuses on projects placed on the site, but that only converts to revenue when the contract is awarded. And it also seems unlikely that the standard fee of 20% charged to the buyer can be maintained as blur moves into higher value projects.

A couple of other points to consider. Issuing a major update to the market the day before a Bank Holiday weekend? Coincidence or designed to minimise any negative market responses?  The departure of the CFO in February was presented at the time as an issue around personal relocation, but one inevitably now wonders whether it was related one way or another to this revenue recognition issue. And finally, the CEO Philip Letts sold  shares in October worth £3.6 million at a price of 400p.  OK, this was his first ever blurGroup share sale and he still holds a lot more, but not exactly a vote of confidence perhaps.

There was also an unusual comment in the Times on Friday. Barbara Spurrier, the firms director of financial reporting, told the paper that blur needed to “temper” the enthusiasm of its executives in order to reduce the “hype” around the business. “In the early days, everyone is terribly enthusiastic and that is sometimes the fault of the management team,” she said.  A strange thing for an internal manager to say.

Now, I like the look and feel of the platform itself and the concept of linking buyers and communities of sellers is a decent one.  These financial and share price shenanigans need not in themselves worry you as a user of blurGroup, unless we get into business survival territory – so we need to look carefully at the cash position when the results are announced in May, as well as the other trading metrics.  Bad luck if you bought shares at 790 in January though!

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