Monday, digital media company DivX Inc. (DIVX), lowered its earnings and revenue guidance for fiscal year 2008, following a notification from major advertising customer, Yahoo! Inc. that it intends to end the two-year advertising services agreement announced jointly in September 2007.
San Diego, California-based DivX now expects fiscal 2008 GAAP earnings in the range of $0.20 to $0.22 per share, compared to prior expectations of $0.29 to $0.31 per share.
Adjusted earnings are expected to range between $0.49 and $0.51 per share, compared to earlier estimations in the range of $0.58 to $0.60 per share for the year.
On average, seven analysts polled by First Call/Thomson Financial expect the company to report earnings of $0.59 per share for fiscal year 2008.
Revenue outlook for the year has been revised to a range of $90 million to $92 million from previous estimate of $95 million to $97 million. Media and other distribution services are now expected to be 15% to 20% of total revenues, whereas initial estimations were in the range of 15% to 25%.
Seven analysts had a consensus revenue estimate of approximately $96.50 million for the year.
DivX said that the downward revision in earnings and revenue forecast was due to the breach of a two-year advertising services agreement by Yahoo!. As per the agreement that was signed in September 2007, consumers who download DivX video software tools, will be offered a co-branded version of the Yahoo! Toolbar and Internet Explorer 7 optimized for Yahoo!. The agreement was due to expire on December 31, 2009.
The company said that it has filed a lawsuit in California Superior Court in Santa Clara County seeking damages from Yahoo! and specific performance under the agreement.
Kevin Hell, Chief Executive Officer of DivX said, "Yahoo!'s decision to breach is unjustified given DivX's fulfillment of its obligations under the agreement. The Company will aggressively pursue legal action to ensure that Yahoo! honors its obligations under this agreement."
The CEO also noted that the company will diligently pursue alternatives to replace the Yahoo! deal and continue to grow its software distribution business.
DivX ended Monday's regular trading at $5.53, down 0.18% or $0.01, on a volume of 174,311 shares on the Nasdaq. In after-hours session, the stock lost another 3.44% or $0.19, trading at $5.34. In the last 52-week period, the stock traded in the range of $4.48 - $18.31, with a three-month average volume of 0.20 million.
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