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Investments see Hostworks profits slide

Investments see Hostworks profits slide

Hostworks has recorded a fall in net profits from $1.5 million to $200,000 in the year to June 30. Revenues rose 20 per cent to $20.5 million.

Managing director, Marty Gauvin, blamed the fall on investments the company made in new ad-serving and software-as-a-service capabilities.

"When new business grows very fast, costs can be hard to anticipate," he said. "We were building new ad systems one after the other - the first to handle initial growth, then a second to meet demand.

"These costs are one-off. We expect to see profitability return to the levels we have previously experienced in the current financial year." Gauvin attributed its revenue growth to applications hosting business through new or extended contracts with Big Brother, Seek, Ticketek, ninemsn and Wotif.com.

"A couple of years ago, everything we did was customised," he said. "We have added more productised offerings, such as ad serving and applications hosting, which give us something to sell to those we have already sold services to."

Another major area of opportunity was the large outsourcing market, Gauvin said. Where big customer deals previously sat at $3-4 million, Hostworks had secured several contracts worth upwards of $10 million per year.

"We're getting into the upper end of the category and are now competing with EDS, Kaz and IBM," he said. "It's what we want. We don't want to be selling direct to hundreds of customers."

Gauvin forecast long-term sales growth through a raft of new ad-serving and managed services wins it experienced this year. These included recent deals with realestate.com.au, Sensis MediaSmart and News Interactive.

"A key opportunity is at the top end through revenue share, where we're accessing consumer level growth in online business," he said. "For example, we ran all of Big Brother's premium services as a revenue share deal."

At the other end of the scale, Hostworks' new channel partnership with reseller, Activ Australia, would also open up opportunities in the SMB market, he said.


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