PhotoChannel Networks Inc. (OTCBB: PHCHF) (TSX-V: PNI)

Dear Reader,

Should you invest in PhotoChannel?

Our regular readers know we don't offer opinion about the companies we cover on our pages but nonetheless, we've been asked more than a few times about the virtues of PhotoChannel (OTCBB: PHCHF), which has dominated the online photofinishing market in Canada for some time.  Meanwhile, the online photofinishing market is growing by leaps and bounds here in the U.S. as well.

Question is, will PhotoChannel be able to penetrate the enormous U.S. market as they have in Canada?  If you believe that it can enjoy similar success in the States as they have north of the border, then perhaps this is a stock that warrants your immediate attention!

Wednesday’s news from PhotoChannel may provide some insight into this question as the company announced its specific intentions to aggressively target U.S. markets while it is continuing to enjoy accelerated growth in its existing markets.   And today's breaking news of an agreement with Canada's Hudson Bay Company (a Canadian retail icon and the country's oldest company) gives PhotoChannel 500 more potential locations.  Interestingly, Hudson Bay has been the subject of reports of an acquisition by U.S. retail giant, Target Corp.  Click Here for recent news story.  Could this agreement be the stepping stone that PhotoChannel needs to jumpstart its U.S. operations?  Perhaps, if the dominos fall just right.

With considerable success in Canada and a fairly analogous U.S. market laying in wait, PhotoChannel CEO, Peter Scarth confidently stated, "While the marketplace in Canada is less than one tenth of the United States, the model is established and proven in Canada, PhotoChannel is ready for substantial growth in the United States."

Take a look at the press releases below for some detailed information to help answer the question, “Can PhotoChannel Penetrate the Massive U.S. Market?”

To review our July 21st comprehensive profile on PhotoChannel, Click Here
 
 

** BREAKING NEWS ** From PhotoChannel Networks Inc.

Press Release Source: PhotoChannel Networks Inc.
Hudson's Bay Company 
Thursday August 26, 8:00 am ET 

VANCOUVER, Aug. 26 /CNW/ - PhotoChannel Networks Inc. (TSX-V: PNI and OTCBB: PHCHF), one of North America's leading digital imaging technology providers, today announced it has launched its solution for Hudson's Bay Co (TSX: HBC - News) Canada's largest department store retailer and oldest corporation.

Using PhotoChannel's widely accepted online solution www.digilab.ca provides Hbc customers with a highly accessible and easy-to-use way of ordering prints from their digital images. PhotoChannel is supplying Hbc with its industry leading Network Imaging technology and has just launched www.digilab.ca, a new component of the Hbc online family of web services. Through the www.digilab.ca website, Hbc customers now have the ability to order prints from their digital camera images for pickup at any of over 300 Zellers and Bay locations nationwide.

Hbc customers are now able to simply place a digital image print order at www.digilab.ca and are then notified by email when the order is ready to be picked up at their selected location. Customers can now enjoy the same quality, service and pricing that they have come to expect from Zellers and The Bay for all of their digital image printing.

"It's important to provide our customers with services that continue to make shopping easier," said, Jeff Adams, General Merchandise Manager, Hudson's Bay Company. "PhotoChannel's Network Imaging technology allowed us to deploy and launch an online photo printing solution rapidly to meet the growing demands of our customers. Offering this solution will simplify and enhance our customer's experience of having their digital images printed professionally while incorporating our conveniently located stores as pickup locations."

"We are delighted that Hbc has chosen PhotoChannel," stated Peter Scarth, CEO of PhotoChannel. "The addition of Hbc's Zellers and The Bay store locations, along with Hbc's marketing prowess is a real win for PhotoChannel and the Canadian consumer. We look forward to being an important part of HBC's growth in digital print business."

This is an excerpt. To read the entire news release and disclaimer, Click Here

Press Release
Source: PhotoChannel Networks Inc.
Wednesday August 25, 8:00 am ET 

VANCOUVER, Aug. 25 /CNW/ - PhotoChannel Networks Inc. (TSX-V: PNI and OTCBB:PHCHF) today provides an analysis of its continued growth and recent trends in the photofinishing industry.

PhotoChannel is now focusing its sales efforts on the US market. The Canadian marketplace, where PhotoChannel provides the dominant online solution for photofinishers, continues to accelerate rapidly. During 2004, PhotoChannel has seen its largest gains, both in terms of the number of orders and dollar value of prints and gifting items, being processed through its network. Since December 2003, the number of orders processed on a monthly basis has increased on a compounded month over month basis by in excess of 24.5%, while dollar value processed through the network increased over 19.5% during the same compounded period. The number of orders processed during the month July 2004 increased 371% when compared to December 2003, while the dollar value processed increased by 255% over the same periods. During July 2004, PhotoChannel's network enabled the online printing of over 1.2 million prints, as well as various gifting items, its most active month in the Company's history. Based upon the average dollar value of processing during the first 23 days of August, network processing continues to track earlier trends and is set to increase by more than 35% over July 2004.

On a per store basis, the largest increase in orders placed has occurred at those stores offering in-store printing (i.e. offering the equivalent of one hour digital processing). Stores offering their customers in-store printing have seen the number of orders increase, since starting to print in-store over an average six month period, by more than 4 to 1 compared to those stores not offering this convenience.

The recent 2004 - PMA U.S. Consumer Photo Buying Report (the "2004 PMA Report") indicates that during 2003, 8% of households with a computer and Internet access had ordered prints online and that of those households 94% had chosen to have their prints returned by mail. However, during July 2004 a sampling of retailers utilizing the PhotoChannel network who offer both mail delivery and pickup in-store showed that customers given the choice, chose to pickup 86% of their orders in-store.

The 2004 PMA Report, also indicates a large shift in consumer behavior from 2002 to 2003, as digital images printed at a photofinishing retailer increased by 12%, a three hundred percent increase, while prints made at home decreased by 6.2% during the same period. With 29.2% of US households currently using a high speed internet connection (Canada is currently estimated at 60%), PhotoChannel believes that ordering online from a photofinishing retailer will continue to grow at a double digit growth rate.

"While the marketplace in Canada is less than one tenth of the United States, the model is established and proven in Canada, PhotoChannel is ready for substantial growth in the United States," stated Peter Scarth, CEO of PhotoChannel. "Although retailers have been slow to deploy an in-store infrastructure, the majority of retailers are now equipped to handle the ever increasing demand for prints from digital images.  With this infrastructure now in place, these retailers are ready to offer their customers the convenience of an online solution. These trends combined with PhotoChannel's expertise in the retail and the wireless imaging business is positioning the company to be able to deliver on its promise of being the number one deployer of digital imaging networks around the world."

This is an excerpt. To read the entire news release and disclaimer, Click Here
 
 

Press Release
Source: PhotoChannel Networks Inc.
Tuesday August 24, 6:00 pm ET 

VANCOUVER, Aug. 24 /CNW/ - PhotoChannel Networks Inc. (TSX - V: PNI; OTCBB: PHCHF)("PhotoChannel" or the "Company"), one of North America's leading digital imaging technology providers, today reported its third quarter fiscal 2004 financial statements for the nine-month period ended June 30, 2004.

PhotoChannel is now focusing its sales efforts on the US market. The Canadian marketplace, where PhotoChannel provides the dominant online solution for photofinishers, continues to accelerate rapidly.

During the quarter, the Company also saw certain of its large retail partners continue an aggressive marketing campaign of their online service and the Company believes that this will continue in their attempt to maintain and increase market share.

"PhotoChannel is pleased to report another strong quarter of revenues," stated Peter Scarth, PhotoChannel CEO. "During the quarter our development engineers were focused on building a grid network and moving our Network solution to TELUS' co-location facility. Although these activities will benefit PhotoChannel over the long-term, they did result in scheduled downtime, which negatively affected website and transactional fees during the quarter. Notwithstanding these extraordinary items, the number of orders processed during this quarter increased by 56.5% over the prior quarter of 2004. Moving forward, the Company anticipates certain of its retailers will increase their digital imaging infrastructure and begin printing directly in- store, resulting in a significant monthly increase in PhotoChannel's network fees. The Company is also encouraged by the exponential growth in the number of orders processed by stores that have adopted the one hour model of printing in-store."

Third Quarter Financials

Revenue for the nine months ended June 30, 2004 was $621,631 versus $284,366 for the same period last year. Revenue increased 119% for the period ended June 30, 2004, compared to the same period last year, due to the photofinishing retailers that have now contracted with the Company for an online solution.  Including deferred revenue, below, revenue for the nine months increased by 146% compared to the same period last year.

The largest increase in revenue has resulted from the retailer's customer's acceptance and usage of an online solution for the purchasing of prints and gifting items from their digital images. This increase has resulted in the Company's transactional revenues during the first nine months of fiscal 2004 growing to $283,953 from $55,117 for the corresponding period during fiscal 2003, a 415% increase.

This is an excerpt.  To read the entire news release including financial tables, management discussion and disclaimer, Click Here
 
 

About PhotoChannel Networks

From its inception nearly 10 years ago, PhotoChannel has been a leading digital imaging technology provider.  PhotoChannel currently works with a wide variety of businesses including photofinishing retailers, professional and commercial photo processing labs, image content owners and targeted portal services.  PhotoChannel has created and manages the open standard PhotoChannel Network environment whose focus is delivering digital image orders from capture to fulfillment. 

PhotoChannel went public April 21, 1997, and during that same year began to focus on digital images.  Back in 1997 this may have been considered premature, but not in the light of today's digital revolution where the proprietary technology built since 1997 is finally being recognized and used by the world's largest retailers.  In March 2001, the current management team took control of the Company and turned its focus solely to the enablement of retailers and on-line communities wishing to integrate digital photo services seamlessly into their operations.  In May 2001, the first retailer went live on the PhotoChannel Network. 
 
 

Headquartered in Vancouver, British Columbia, Canada, PhotoChannel has a wide distribution network that is expanding across North America and into the U.S.  PhotoChannel provides two lines of  imaging software for the digital photography market: 1. Connects the end user (consumer) with the digital mini-labs or Kiosks used by the photofinishing retailers under a distributed printing or wholesale model; and 2. Connects camera phone users to the Internet and permits users to print at retail photofinishers.

PhotoChannel is well positioned to capitalize on the current growth of the photofinishing industry.  The Company has experienced a 100%+ growth rate quarter over quarter through fiscal 2003 and online transactional revenue grew by 700% from the end of Q2 2003 to Q2 2004.  PhotoChannel's quarterly transactional revenues at March 31, 2004 increased 66% over the previous quarter and the Company is operating with a gross margin in excess of 60%. 
 
 

The Photofinishing Industry

This revolution is seeing drugstores, supermarkets and photo shops installing new digital mini-labs and photo kiosks in an attempt to sway customers from home printing, which has been stealing consumers from the $10 billion photo developing industry. 

Digital Photo consumers are poised to go to mass market photo developers in this price-sensitive market, with prices as low as 19 cents per digital print, compared with up to 75 cents per home print. People are also more likely to trust photo shops to make quality prints of a wedding or portrait shot of a new baby.  The Photo Marketing Association estimates the home printing share of all digital photo output this year will slide to 71 percent from 84 percent a year ago.  At retail, it forecasts traditional photo developers' share to jump to 22 percent from 9 percent a year ago.
 
 

Financial Highlights For PhotoChannel Networks

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