Blinkx warns on earnings after critical blog hits demand

* Company warns on first-half earnings

* Trading hit by critical blog post

* Shares (Berlin: DI6.BE - news) down 37 pct (Adds shares, further analyst reaction)

By Paul Sandle

LONDON, July 2 (Reuters) - Video search and ad group Blinkx (LSE: BLNX.L - news) Plc cut its profit expectations on Wednesday, blaming industry-wide concerns about the effectiveness of some kinds of Internet advertising, compounded by a critical blog about the company.

Shares in the British group, which were already trading at less than half the level they were before the blog in January, plunged more than 40 percent to a two-year low. They were trading down 37 percent at 38.5 pence at 0748 GMT.

Blinkx (Other OTC: BLNKF - news) said core earnings for its first half to end-September would be about $5 million below its expectations after disappointing demand in the last three month resulted in a shortfall in revenue and earnings. Revenue rose 5 percent.

"We attribute this performance to industry-wide issues of efficiency and effectiveness, which, in our case was compounded by the lingering effects of the disparaging blog," it said.

A blog post by Benjamin Edelman from Harvard Business School raised concerns about the tech firm's business model in January, resulting in its shares losing as much as half their value. The company rejected his claims.

The group has a market value of 154 million pounds after the sell-off on Wednesday.

Analysts at Citi, who have a "buy" rating on the stock, said the group's valuation was already very depressed, but the warning was "still a big disappointment".

They said the key question was how much of the problem was down to the blog and how much was down to structural issues in the industry.

Noting that the company had previously said the impact from the blog was beginning to abate, Citi said the concern was that industry-wide factors were dragging, pointing to factors like worries over ad fraud and privacy.

Analysts at Numis, meanwhile, lowered forecasts after the warning, taking full-year revenue down to $268 million from $288 million and core earnings to $33 million from $43 million. (Editing by Sarah Young and Mark Potter)