RealNetworks shares halved, analysts mixed
CIBC Oppenheimer analyst John Corcoran downgraded the stock,
from "buy" to "hold" and provided the grimmest outlook for
RealNetworks the sector.
He came to six grim conclusions
1.The effects of the Internet advertising crunch will be felt
throughout all of 2001;
2.RealNetworks' ad revenue will remain under pressure for the
next four quarters;
3.the streaming media space is developing more slowly than
anticipated;
4.very few firms have developed sustainable business models
based on streaming content;
5.there is further downside risk to the company's revenue and
pro forma EPS estimates for 2001;
6.and there are no major, catalysts that will move the stock in
the next several quarters.
Corcoran took issue with management's statement that demand for
streaming content from end users is higher than ever, and that
RealNetworks is "pumping out more bits" than ever. He said that was
"difficult to reconcile with the fact that the company has effectively
lowered guidance twice in the past two months."
"In our view, the problem is that most of the 170 million consumers
who comprise the company's user footprint paid nothing for the
client software and pay nothing for the streaming content they
enjoy," Corcoran said in his research note. The company will need
to diversify revenue, reduce its exposure to online advertising, and
have a sustainable business model before it sees improvements, he
said.
Credit Suisse First Boston Heath Terry also downgraded the stock to
"hold."
Terry said the long-term outlook for RealNetworks was unchanged,
but "it is clear that the current market environment makes it virtually
impossible to project with any certainty the near-term trajectory for
revenue and earnings." He added that he "plans to return to a more
positive opinion once visibility becomes less of a question."
Another downgrade came form Raymond James analyst Phil Leigh,
who lowered the company to "market perform" from "strong buy,"
based on the profit warning, sluggish software sales and the fact that
its earnings comparisons won't improve for a year.
On a positive note, Leigh said he continues to believe that "the
future Internet will be video-centric and no company is more
intensely focused or better positioned to capitalize on the
opportunities than is RealNetworks."
Bear Stearns analyst Robert Fagin reiterated an "attractive" rating,
and said the company's fourth quarter shortfall was surprising, even
though he had anticipated numbers for fiscal 2001 to be below
company's guidance.
Fagin lowered his 2001 revenue targets from $325.3 million to
$273.8 million, below management's expectation of $300 million.
He also lowered earnings from from 23 cents a share to 16 cents a
share.
UBS Warburg analyst Michael P. Wallace was more optimistic, and
reiterated a "buy" rating. He recommended "buying on weakness,"
considering the company "has $2 (per share) in cash, is profitable,
and a primary beneficiary of broadband."
He also saw the company's "GoldPass" product as a positive as it is
rapidly gaining traction.
He reduced estimates for Q4 and 2001, 2002, 2003, and 2004, and
lowered his price target to $20 from $50.
"This company will grow with broadband, and $6 is too low for a
high quality company like this, in our opinion," Wallace added.
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