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AT&T portal investment leads to bigger loss at Synacor

Synacor Inc. reported a much larger fourth-quarter loss after the Buffalo-based internet content provider made big investments as it geared up for the launch of a major new contract to run AT&T’s internet portal.

The loss, which was 10 times bigger than Synacor's loss during the fourth quarter of last year, was in line with analyst forecasts and mostly stemmed from the more than $2 million it spent during the quarter to develop new products for AT&T's portal.

Himesh Bhise, Synacor's CEO, said during a conference call that the company is on track to launch the AT&T portal during the first half of this year, slightly later than originally planned, and that he expects the portal to generate about $100 million a year in new revenue for Synacor once it is fully in place.

Synacor said it expects its sales, which grew by 16 percent during 2016, to rise by 30 percent this year as its AT&T sales ramp up. Bhise said he expects Synacor's revenues to reach $300 million by 2019, which would be more than double its 2016 revenues of $127 million. As the AT&T business expands, Bhise said he expects Synacor's losses to narrow and its operating cash flow to increase "very significantly."

Synacor lost $3 million, or 10 cents per share, during the quarter, compared with a loss of $388,000, or 1 cent per share, a year ago.

Revenues rose by 8 percent to $34.9 million, which was slightly less than analysts expected, compared with $32.4 million a year ago as advertising sales increased by nearly 50 percent, offsetting a more than 50 percent decline in search revenue.

Synacor said it expects revenues to rise to between $160 million and $170 million this year, which is in line with analyst forecasts. It predicted a loss of between $6.2 million and $7.5 million, down from $10.7 million last year, as it continues to invest in the AT&T launch. By the end of last year, Synacor had spent about $7.7 million of the $10 million it expects to spend on the AT&T launch.

"The good news for Synacor shareholders is that the bulk of the operating expenses and capital spending - nearly $10 million required to on-board AT&T is now behind Synacor," said Needham & Co. analyst Laura Martin in a research note. "We expect the financial benefits from the AT&T deal will begin in the third quarter of 2017 and extend for the next several years."

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