Cryptologic (CRYP) Falls Hard on Earnings Warning

Straight from the horse’s mouth: Cryptologic press release.

I’ve been watching CRYP for a while now (and posted my thoughts over a year ago when the stock was around $24).  After the latest sell-off, the stock is at $10 and change.  As these things usually go, the stock is less risky now than it was back then but there are still some doubts nagging me in the back of my mind:

  • Just how big is this operating loss going to be?  Q2 2007 revenues were $16.2M so we can expect a  “modestly” higher number.  But the kicker is that the company is guiding toward “higher-than-normal” operating & G&A expenses.  Notice that there is no “modest” qualifier on this part of the release.  Q2 2007 expenses were $19.3M but included $4M in reorganization charges related to the Ireland move.  Q1 2008 expenses were $19M but included ~$2M related to the CEO change.
  • What will this do to cash flow?  Q1 2008 saw exceptionally low cap-ex spend (under $1M).  The company appeared to be turning the corner back toward positive cash flows but this latest setback casts that theory in doubt.

I may post my research report on CRYP at a later date but in the meantime, it will be interesting to see what management has to say next week during the earnings release.

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