November was a month to forget for shareholders of media monitoring company iSentia Group Ltd (ASX: ISD).
Its shares are down over 20% in the last 30 days largely as a result of the release of a trading update in the middle of last month.
That update revealed that its recently acquired content marketing business has been severely underperforming. Because of this the company has revised its guidance and expects full year earnings before interest, tax, depreciation, and amortisation (EBITDA) growth to be in the high-single-digit range.
This was all the more surprising because its content marketing business was one of the bright spots from its FY 2016 results. Pro forma revenue from the King Content acquisition increased 68% year on year, which was well ahead of the company's expectations.
But according to management the segment has lost revenue momentum in FY 2017. Management pointed to poor decisions around strategy, new business development, and client retention as being the reason for the underperformance.
In light of this underperformance the segment is now expected to report an EBITDA loss of around $2 million in the first half of the year. But thanks to a new organisational structure and a change of CEO at King Content, iSentia has forecast an improved second half of FY 2017 for the segment.
Although management has let down shareholders recently, I'd be willing to give them time to fix these problems. After all, iSentia is a wonderful company with plenty of growth ahead of it.
The company's flagship Mediaportal platform provides users with a cloud-based workspace which delivers news as it happens. I believe this is an invaluable tool for companies and one which will only grow in importance in the future as the digitisation of media continues.
Whilst investors ought to be sceptical of companies promising better second halves to the year, I think at the current price it is well worth giving iSentia the chance to deliver on this.
At just 17x estimated FY 2017 earnings, I think the company provides investors with a compelling risk/reward. Because of this I would put it up there with Aconex Ltd (ASX: ACX) and WiseTech Global Ltd (ASX: WTC) as one of the better buys in the tech industry.
