Briefing.com highlights RNWK following its recent jumps:
"RealNetworks = Real Deal
Daily commentary updated for April 3, 1998
Company Brief
RealNetworks (RNWK 36 7/8) provides branded software products and servies that enable the delivery of media content over the Internet and intranets... Products include RealSystems , a streaming media solution that includes RealAudio and RealVideo technology; an e-commerce Web site; and a network of advertising supported Web sites... Last month company acquired Vivo Software for roughly $17.1 mln.
Unlike most of today's Internet-related IPOs, RealNetworks spent the first few months after coming public trading in a relatively narrow range. But the stock has made up for lost time, gaining 154% since 2/27/98. In light of the near vertical advance and the fact that the company now trades at nearly 31x trailing sales, we wouldn't be at all surprised to see stock stage a near-term pullback. That said, Briefing contends that RealNetworks is the real deal. While hype is behind the gains of many Internet stocks, RNWK is fast building a dominant position in the fast-growing market for streaming software.
Streaming Software Coming of Age
Bandwidth limitations made RealNetwork's (then called Progressive Network) first products seem crude, as video quality was crummy and audio only marginally better. With the expansion of the pipeline over the past few years has come much improved audio and video quality. We're still talking the early years, but streaming software that enables the end user to deliver their audio/video products over the World Wide Web has emerged from its infancy stage with great promise. The result, RealNetwork's products are ready for prime time. No not that prime time (though who knows in a few years). We mean the corporate marketplace. The use of the company's product suite for training videos, conferences, education is about to explode.
PC/TV Convergence
Above we noted that the company was not ready for prime time, at least as that term is defined in the broadcasting arena. But as the pipe gets wider over the next few years and the quality of video improves look for companies such as RealNetworks to exploit the convergence between TV and the PC. The advent of full-motion, full screen video will result in programming on demand - a potential nightmare for the big three networks. Fox, C-Span and others are already available to anyone with a modem and RNWK products. In addition, RNWK's RealSystem 5.0 added an advetising insertion, which enables broadcasters to insert ads seamlessly into the video stream. Just think how attractive it will be to advertisers knowing that a consumer seeing their add will be able to instantly order said product.
Valuations
It is hard to gauge value in the Internet industry where growth rates are phenominal and profits (at least for now) nonexistant. Clearly the lack of earnings makes the p/e meaningless. As such, many analyst/investors look to a company's price to sales ratio. The general rule of thumb is that 15x-20x sale is "fair" value and that over 30x sales is overvalued. Using this benchmark, RNWK would appear to be slightly overvalued. But this is a case where value is secondary to promise, as Briefing believes that RNWK is carving out a dominant position in a fast growing marketplace that offers tremendous long-term profit potential. As such we would use any corrective dips to (re)enter long-positions. Support is at 30. Our 18-24 mo target is 50-55. Of course, the lack of earnings visibility makes the stock an investment candidate for high-risk, aggressive growth investors."
Brian |
