The yo-yo situation at Zoo Digital, the UK HQ’d media production software company that made a brave break into the US market continues, with interim results showing an acceleration of the revenue losses it ended the last financial year with.
For the six months to September 30 2011 revenue dropped 27% from the year ago figure of $8.1m to a low $5.9m. From a profit of $880K the previous year, it ended H1 with a $1.1m operating loss. This was despite work done at the end of the last financial year to raise new working capital and restructure (see Zoo to raise £1.7m following FY slide). The good news is that it expects $1.2m in annualized cost savings and its cash balance has gone up to $1.5m – but through last year’s initiative to place shares we believe, not because of its operating activities.
Zoo’s problem is that it is operating in a market that is fading as consumers move away from buying DVD’s. Although it has diversified into other markets such as Blu-ray, ebooks, and electronic sell through (see Diversification puts Zoo back on target), revenue in these areas is not growing fast enough to offset the falling cascade from the main DVD business. Its partnership with print-packaging company MPS represents another revenue opportunity but there has been disappointingly little activity here given that the partnership was announced in June last year. The first contract was signed in H1 however – we hope H2 will see more progress.
Transitions are always tough and Zoo is in the middle of major market change that we feel has changed more quickly than expected. Its actions to diversify have put it into growth areas but they are not delivering the level of revenue it needs to make up shortfalls elsewhere. We hope it can tough it out and rise alongside the new markets.