Synacor Inc. broke even during the first quarter as the Buffalo-based Internet-content provider’s sales and profits sagged because changes in Microsoft’s new Windows 8 operating system led to a drop in advertising revenues.
The sales weakness, however, was expected after the company’s disappointing sales drop during the fourth quarter of last year, and Synacor executives said they were encouraged by growth in its services that allow subscribers to access their cable television content and social media services from a single sign-on.
“On one hand, we are excited about our new customer prospects, the strength of our customer pipeline and our new products,” said Ronald Frankel, Synacor’s chief executive officer, during a conference call. “But on the other hand, we are experiencing lower search volume as we continue through this transitional year.”
As a result, Synacor’s profits tumbled to just $27,000, or roughly break-even, from $1.2 million, or 4 cents per share, a year ago.
The company’s revenues, while consistent with the forecasts by Synacor executives in February, fell by 5 percent to $29.1 million from $30.7 million as the money the company gets from search engine advertising fell by 16 percent.
The company’s shares, which have tumbled by 38 percent this year because Synacor executives now forecast that revenues this year will rise by only about 2 percent, rose by 1.1 percent, or 4 cents, to $3.59 on Wednesday.
The weakness in search engine advertising stemmed from changes in Microsoft’s new Windows 8 operating system, which made the software-maker’s Bing search engine the default search provider and set its MSN site as the home page on computers using Windows 8.
That change relegated the start pages that Synacor designs for its customers, such as computer-makers Toshiba and Lenovo, along with a handful of cable television providers, to a secondary tab on those computers’ Internet browsers. That hurts Synacor because the company generates revenue every time a subscriber uses the Google search box on the start pages that it designs, while a reduction in page views also hurts Synacor’s advertising sales on those start pages.
In the long run, though, Frankel said the company still believes that it has strong growth prospects, as its TV Everywhere system gains acceptance, including the addition earlier this month of Verizon’s FiOS TV as a major customer. The company also has launched a Cloud ID offering that lets Synacor customers access the content from TV Everywhere with the same login that they use on social media sites such as Facebook and Twitter.
The company also is working on new products aimed at customers with smartphones and touch-screen devices, Frankel said.
“I’m very enthusiastic about our new product pipeline,” he said. “I’m confident our investments into these products will produce great results as we move into 2014 and beyond.”