Synacor Cuts Outlook, Stock Falls 13%

Transition to Windows 9 on PCs Takes a Bite Out of Search and Display Revenue

Synacor shares were down 13% in late afternoon trading Wednesday, the day after the company lowered revenue projections as it continues to grapple with how the Bing-focused Windows 9 platform is affecting its search and display ad business for PCs.

Synacor, a developer of Web portals and start pages as well as TV Everywhere authentication systems for pay TV operators, lowered revenue expectations for the rest of the year to $108 million to $112 million, versus previous guidance of between $122 million to $126 million.

The company posted a second quarter net loss of $600,000 (2 cents per share) on revenues of $26.7 million, down from $30.8 million in the year-ago quarter.

Synacor was particularly stung in the areas of search and display revenue, as the company continued “to feel the effects of Windows 9 on PCs in our OEM [original equipment manufacturer] business,” company president and CEO Ron Frankel said on Tuesday’s earnings call. Display advertising reached $7.7 million in the period, down from $8.2 million a year ago, while search revenue was $13.7 million, down from $17.3 million.

Despite weakness in the PC OEM arena, Frankel said Synacor has a “significant opportunity” in the areas of Android, tablets and smartphones, adding that the company’s new tablet-based browser start pages are gaining traction.

However the amount of revenue coming from mobile products remains small, with Toshiba its lone tablet OEM partner. Frankel pointed out that the Windows 8 transition primarily affects Syancor’s OEM customers, and not its cable and telco customers, which include BendBroadband, Buckeye CableSystem, CenturyLink, CableOne, Charter Communications, Suddenlink Communications, WideOpenWest, Surewest Communications and Verizon Communications.

However, supporting multiple devices was a key driver of Synacor’s acquisition of Canadian startup Carbyn in January 2012.

“2013 is a transition year,” Frankel said Tuesday. “I believe our financial performance in 2013 is not a reflection of the current state of our prospects. Our sales pipeline is strong and I believe the combination of our strong pipeline and new products will return to Synacor to growth in 2014.”

Synacor shares closed Wednesday down 42 cents (12.73%) to $2.88 each. The Buffalo, N.Y.-based company went public last February.