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RealNetworks Pounded
Seattle streaming media entertainment company RealNetworks cut its Q4 profit estimates 50% after last night's close. Citing an Internet spending slowdown, CEO Rob Glaser projected earnings of $0.02 per share versus analysts' $0.04 expectation on revenue between $58 and $60 million. With $307 million in the bank, the company rightly says it's well-positioned to ride out soft PC sales and the decline in advertising revenues. Its long-term future, though, is very much a guess.
By Tom Jacobs (TMF Tom9)
December 21, 2000
With its most famous alumna now Senator Maria Cantwell, Seattle's Internet streaming media company RealNetworks (Nasdaq: RNWK) faced a post-election hangover. CEO Rob Glaser warned investors yesterday on a post-bell conference call to expect EPS of $0.02 for Q4, half the market's expectation. The market ripped the stock down 40% as of last check, with shares trading between $5 and $6 today after closing yesterday at $9.94, a fraction of its 52-week high of $96.
PC and ad slowdown -- surprise, surprise
RealNetworks projects year 2000 revenues of $240 million from sales of its streaming Internet media software to corporate customers and PC manufacturers, and revenues for ads on its Real.com site via RealSystem products such as RealPlayer. CEO Glaser attributes the Q4 slowdown to "a fair amount of brake-tapping" on the corporate information technology (IT) spending side, a slowdown in new PC sales, and softness in the advertising market. Sitting on $307 million in cash, he plans no retrenchment or layoffs, and projects a 20% increase in 2001 revenues from 2000's projected $240 million. "That certainly suggests we expect continued growth," Glaser said.
Can it sell subscriptions?
RealNetworks is trying to add a subscription model to its revenue base, hoping to entice its claimed 170 million registered worldwide users with its free RealPlayer, RealJukebox and Real Audio software. Nico Detourn reports that the company hopes to leverage this RealSystem technology user base into business for its branded hub Real.com, launched in November 1999 as an online media and entertainment destination.
Part of that plan includes subscription-based GoldPass service for $9.95 a month -- provided you buy a $29.99 enhanced RealPlayer Plus. To date, the GoldPass entertainment offerings don't excite, but RealNetworks is reportedly working with record labels to offer downloadable music -- the killer app. Just as Nico opined after RealNetworks' Q3, it's still too early to say whether GoldPass is working for the company or not.
Investors may still be skittish over the import and impact of the company's March decision to license Windows Media Player technology from its Redmond, Washington neighbor, Microsoft (Nasdaq: MSFT). Each company ballyhooed the decision as proof of its own dominance: Microsoft that RealNetworks acknowledged its superiority, and RealNetworks that it solidified a larger customer base by offering the only competing platform. (These folks sure make political spin look bush league -- no pun intended -- don't they?)
Two months after the deal, RealNetworks introduced its Real Entertainment Center, combining its products and facilitating Web file downloading in a further effort to move from software to content. With revenues and users still growing, fear of Microsoft may be misplaced.
How can RealNetworks grab my money?
Personally, I use streaming media products sporadically: Sometimes when accessing a company conference call or some other news event from the web, more often to listen to favorite radio stations from places I've lived around the U.S. I have no need to pay -- but I'm well past the years when I compulsively dropped money every week on records, tapes, or CDs. I've never downloaded a Napster file. Short term, every company depending upon Internet ad revenues is hurting. But long term, even though the company is newly profitable, has a cash pile, is growing revenues, and leads its market (about 1,000 new economy companies would kill for that checklist), it needs to find a way to many pockets like mine. To do that, broadband Web access has to become ubiquitous at home, not just at work.
Depending on your view of RealNetworks, the company's future could be so bright that the stock is now value-priced, or it could be facing so much Web-based media competition that it's a long-term dud. Please stream in with your view on the Fool's Real Networks discussion board! |
