Customer Pain Seeps into Nstein (EIN.TO) Q1 Results.

First of all, even as its recurring revenues continue to expand as a portion of the total, Nstein generates most of its quarterly revenues from large enterprise licenses. As a result, quarterly results are sensitive to the buying decisions of its prospective customers. During Q4 2008, the company beat expectations as major implementations were initiated, while Q1 2009 is likely to be considered by analysts to be a miss. The lumpiness makes it difficult to forecast results and future earnings performance. This is why analysts prefer stocks with recurring revenue models.

Nstein's Q1 results are impacted by delays in purchasing decisions by its publisher market niche because the sector is under extreme financial stress due mostly to the cratering of CPM rates, and a significant decline in advertising campaigns by marketers. Essentially, publishers were conserving cash during the quarter. In the future, economists are likely to identify Q1, 2009 as the bottom of the recession, which is good news for Nstein, and may result in some performance recovery in the latter half of FY 2009.

As the world economy begins to recover during the last half of 2009, investors may see some pent up performance as delayed CMS investment decisions pile up, especially during Q4, 2009. During the past two years, Nstein's Q4 has consistently performed ahead of expectations.

The Company has $6.7 million in cash and only $0.4 million in long-term debt, so it has adequate balance sheet strength for the remainder of the recession. A focus on recurring revenue by Management, either through business model tweaks, or via acquisitions would also help to smooth out quarterly performance and help to improve predictability on future cashflows.

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