Synacor Inc.’s third-quarter profits tumbled by more than half as higher compensation expenses offset an 18 percent increase in the Buffalo-based Internet content provider’s sales.
Despite the drop in profits, Synacor’s earnings and sales were in line with analyst forecasts, and the company’s shares rose by 4 percent in early trading today after an analyst from Albert Fried & Co. upgraded his rating on the shares.
“We had another solid quarter,” said Ronald N. Frankel, Synacor’s president and chief executive officer, during a conference call.
Synacor’s profits slid to $700,000, or 2 cents per share, from $1.5 million, or 7 cents per share, a year ago, partly because its stock-based compensation for executives and employees more than doubled to $500,000 during the quarter. The company’s earnings per share also weakened more rapidly because Synacor now has about 37 percent more shares outstanding following its initial public offering this spring.
The company’s revenues rose to $28.3 million from $24 million, fueled by a 24 percent jump in revenues from search and display advertising that offset a 3 percent decline in subscription-based revenues.
The display advertising business was especially strong during the summer, with revenues jumping by 59 percent to $8.8 million, and topping 30 percent of the company’s total sales for the first time.
Search revenue, which accounts for slightly more than half of Synacor’s revenues, grew by 10 percent.
Much of the improvement stemmed from a steep increase in the number of people visiting the start pages Synacor provides for consumers who are using a wide range of devices, from personal computers to tablets, televisions and smartphones. Synacor generates a tiny amount of revenue every time a visitor to one of those pages does an Internet search or clicks on an ad.
The websites Synacor operates for its customers averaged 20.2 million unique visitors a month during the quarter, a 44 percent increase from 14.1 million a year ago.
Revenue from subscription-based services fell by 3 percent to $5.1 million.
“We anticipate our revenue mix will continue to diversify over time,” Frankel said during the call.
Syncacor also narrowed its revenue forecast for the current quarter and the full year. The company said it now expects $31 million to $33 million in revenues during the fourth quarter, which is on the low side of the $33 million that analysts were expecting. For all of 2012, revenues are forecast to range between $120.8 million and $122.8 million, which is less than the $123.5 million analysts were expecting.
The scaled-back revenue forecast reflects “the uncertainty of the timing of our new customer launches and the resulting impact on volume, along with user trends over the year,” said William J. Stuart, Synacor’s chief financial officer.