In morning trade the iSentia Group Ltd (ASX: ISD) share price has plunged 45% to 98 cents following the release of a trading update.
This brings the media monitoring company's year-to-date decline to a staggering 66%.
What was in the update?
This morning iSentia announced that due to its continued underperformance the company has decided to exit its King Content business by the end of the year.
The content marketing business which iSentia acquired for $48 million in 2015 has been nothing short of a disaster and is the key reason why its shares have lost almost three-quarters of their value over the last 12 months.
Management recently wrote down the value of King Content and set it a goal of being at least EBITDA neutral in FY 2018. As it has failed to achieve this, it appears as though they have decided to cut their losses sooner rather than later.
What about the rest of the business?
Unfortunately, its core business isn't firing on all cylinders either. Trading conditions in the first-quarter of FY 2018 have been mixed.
Revenue pressures as a result of higher levels of customer churn still appear to be negatively impacting the company, with revenue down on a mid-single-digit percentage basis compared to the prior corresponding period.
In light of this, management's FY 2018 guidance is for revenue between $133 million and $138 million and EBITDA in the range of $32 million and $36 million. This compares to revenue of $155.1 million and EBITDA of $41 million in FY 2017.
Should you buy the dip?
Based on its guidance today I estimate that iSentia will deliver full-year earnings per share of approximately 10 cents. Which means that its shares are changing hands at roughly 10x forward earnings today.
Whilst this is cheap, considering the mess of the King Content business and the mixed performance of its core business, I think there's chance earnings will continue to decline in FY 2019. This potentially makes iSentia a bit of a value trap.
So instead of risking your money in this embattled company, I think tech shares such as Nextdc Ltd (ASX: NXT) and Aconex Ltd (ASX: ACX) would be much better options for investors.
