Can you make money from the 'eBay of marketing'?
This small-cap online marketing company has a simple idea and a stock market valuation of £20m. But can it and its investors make any money? Tom Bulford investigates.
"Great writers are rare to find, they evoke vision, purpose and a call to action." It is nice to be appreciated, so thank you to blur Group plc for giving struggling scribes like me a bit of credit.
blur (Group) plc has just joined the AIM market, and in case you think that my grammar is a bit off today, I can confirm that blur does not have a capital B, and it likes to have Group' in parentheses.
These things go in fashion. Back in the early 1980s any stock market newcomer that wanted to generate a bit of excitement would call itself 'Micro-' something or other. Then we had the era of the dotcommers, while more recently small companies have been shoe-horning the word mining' into their names just to get investors' attention.
A platform that hunts out the creative
Today the fashion is for spelling a company's name without an initial capital letter - eBay, for example and if this is supposed to conjure up a vision of tech geeks creating the next internet sensation, that pretty much sums up blur Group.
blur has a simple enough idea. It provides an online platform on which those who want to run media campaigns can meet up with the oblong-spectacled creative brigade and find a likely partner. Its online exchange platform gives you access to writers, marketers and photographers.
blur has managed to attain a stock market valuation of £20m which, given that it made a loss of $483,000 on sales of $1.5m in the first half of the year, ascribes plenty of hope value to this fledgling business.
Companies such as Harvey Nichols, the AA and Coral (which in August was responsible for the one thousandth bit of actual business to be transacted over blur's global exchange') have given it a try and blur quotes some enthusiastic endorsements from the likes of Berlitz and Butlins. Blur Group, though, is not yet making any money and investors should ask a few questions before they get too dew-eyed over a business that has been called the ebay of marketing'.
Two reasons why I'm cautious about blur
First of all blur claims that all of the 20,000 experts, agencies and other providers that offer their services over the exchange "are reviewed and approved by the group's exchange support executives before joining". Given that these 20,000 experts herald from 130 different countries, such a review can hardly be other than superficial.
We are not told how many people blur employs, but aside from vetting these participants they also review all responses to work tenders, picking out the best ones on behalf of the client. With blur now receiving new work briefs at the rate of 60 a month, all prompting, presumably, plenty of responses, it is going to be a time consuming process. And one that requires some expertise and knowledge of the client's likes and dislikes.
An unlimited supply of expertise around the world
The attraction of the global exchange is that it potentially puts businesses in touch with an unlimited supply of expertise from all over the world. The response can be quick, the whole process, including payment is overseen by blur, and money can be saved by cutting out the middle-man which, in the marketing industry, means an agency.
But participation is far from free. For each brief submitted, buyers pay a listing fee equal to 10% of its value, or a minimum of $375, while suppliers will only receive 80% of the agreed fee, with blur pocketing the other 20%. In order to hang on to such margins, blur probably needs to corner the market. In a business with no obvious barriers to entry, that may be hard to achieve.
blur is now looking to diversify, and wants to extend the platform to allow technology, legal and financial experts to source work. To that end, and presumably to take on the additional staff that its business model appears to require, it has raised £4m through a placing of shares at 82 pence.
Conceivably, blur will manage to justify its £20m valuation. After all, as I describe in the October issue of Red Hot Penny Shares, the world of marketing is in a considerable state of flux, and new opportunities abound.
But rather than invest in a £20m business that seems some way from making a profit, I prefer to play this theme through a £35m business that has just reported a very healthy profit. What is more - the name of this company also starts without a capital letter. That has got to be worth a few points on the price/earnings (PE) ratio.
This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.