Can Quickflix Ltd survive 2015?

The Pirate Bay has been shut down but Quickflix Ltd. (ASX:QFX) is still in trouble.

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published December 23, 2014 8:22 am AEDT

Ok, so the Pirate Bay has been shut down and streaming movies and TV shows is becoming increasingly affordable, but I still cannot understand what would make any sane investor view ASX-listed video-on-demand company Quickflix Ltd. (ASX: QFX) as a good investment.

Not only has the company never reported a profit but it has also issued an extraordinary amount of new shares over the last 10 years. Shares outstanding rose from just 40 million at the end of the 2005 financial year to over 1,150 million at the end of the 2014 financial year.

Another Capital Raising

In order to keep up with competitors, Quickflix hit up shareholders again in late November for another $5.7 million. The offer, priced at 0.3 cents per share and offering five new shares for every four currently held, would have taken the shares on issue to nearly 2,600 million.

The problem is though, that the company was only able to issue 216 million new shares, raising $650,000 in cash, because investors appear to have finally realised that enough is enough.

Competitive Industry

Quickflix has to contend with an increasingly crowded and cashed-up Australian industry. Its competitors include Foxtel, Netflix (in 2015 or via a VPN), Google's Play Store, Apple's Itunes Store, StreamCo (a collaboration between Nine Entertainment Co Holdings Ltd (ASX: NEC) and Fairfax Media Limited (ASX: FXJ)), and FreeviewPlus (a collection of shows from free-to-air TV).

The problem for all of these companies is that invariably the service with the most comprehensive catalogue of shows will get the lion's share of the revenue. Quickflix simply doesn't have the cash reserves, compared to its competitors, to purchase the local rights for quality US shows that Australian viewers are willing to pay for.

The End of Quickflix

Could it be possible that 2015 will be the last year that we see Quickflix on the Australian share market? It's possible that the company could be purchased at bargain basement prices by a local competitor, however this would be a small consolation prize for investors that have lost 99% or more of their capital.

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