Czech This Out

KIT digital, Inc. (NASDAQ – KITD - $3.73) is on the move today on news it is engaged with several parties regarding a potential sale or merger. The stock is down big time in 2012 as the tide has turned against it.  As a result, there have been a number of changes in senior management in just the past 2 months.

The Company, based in Prague, provides end-to-end video asset management software and related services to around 2500 enterprise and media clients.

It is hard to have conviction regarding 2012 financial projections, let alone 2013 (which we just throw out right now) but management seems convinced it will generate $250M in revenue this year, which would be a 16% rise from last year.  KITD is a cool company with cool technology and top tier clients with a low attrition rate. Under normal circumstances we would use this opportunity to do some work on potential valuation.  Our back-of-the-envelope view is that KITD could be sold for at least 1x projected FY12 revenue of $250M, which would be a 25% rise from current levels, on a fully diluted basis.  However, there has been a recent filing by some selling shareholders to sell up to 15.3M shares, or 31% of the total shares outstanding.

Considering the Company just had a secondary offering where it raised money, and has a pretty large institutional following, I would think that the stock would be higher today.  It likely means that the jury is still out here.  It might be worth a taste and a 30-45 day hold in case a deal is struck, but I would not go all in as it clearly still has downside risk.

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