Keep it Real
The Take
Upside
April 23, 1999
by Phil Harvey
In the past few days, RealNetworks' (RNWK) stock price has been about as stable as Darryl Strawberry. But unlike the New York Yankees outfielder, RealNetworks' future is more promising.
RealNetworks shares rocketed up 50 points from April 1, hitting $229 on April 13--only to come sliding down to just over $128 four days later. Then, propelled by earnings news and the announcement of an upcoming 2-for-1 stock split, RealNetworks shares shot up to $190 on Wednesday, April 21.
The company's first-quarter earnings revealed RealNetworks' 15th consecutive quarter of sequential growth, though it reported a loss of 2 cents a share. Rob Martin, an analyst with Arlington, Va.-based Friedman Billings Ramsey Group Inc., says RealNetworks has met the Street's estimates every quarter since going public.
According to Martin, RealNetworks is popular with developers, which gives it a huge advantage over streaming software platforms offered by Microsoft. " [RealNetworks CEO] Rob [Glaser] always stresses that point in quarterly calls and user conferences, and I don't think people realize the huge differential [RealNetworks offers] from a developer standpoint," Martin says.
Additionally, it's hard to argue with the power of 60 million registered users of RealNetworks' client-side software.
"Even in the face of Microsoft's increased competition in the first quarter, RealPlayer downloads went up," Martin points out. This is quite a feat, considering most companies watch their market share buckle as soon as Microsoft incorporates competing technologies into Windows and Internet Explorer.
What about Apple's popular QuickTime software? In an April 21 research brief, Martin acknowledges Apple as a dark-horse competitor and says Real must remain innovative.
As Real begins selling streaming advertising, it faces an interesting challenge, according to Martin. RealNetworks could coincidentally run ads for content providers' competitors during their spots. Whether content providers will view this as a necessary evil or a cheap trick remains to be seen.
RealNetworks is undoubtedly popular with end users, but its status with investors is still uncertain. Wall Street's perception of RealNetworks as an Internet company, not a network-software company, should help sway investor sentiment.
Like other Internet stocks, Real's share price is just as prone to hit homers as it is to binge on crank, sauce and hookers. But it's also enjoying the favor of analysts. Martin's firm, Friedman Billings Ramsey Group, for example, has increased its price target for RealNetworks to $300.
Even without a Net image, RealNetworks is a solid company. It dominates the market in the face of aggressive competition and continues to grow its user base and revenues. If RealNetworks keeps it up, the popularity of MP3 music distribution and the advent of broadband media delivery could catapult Glaser and pals into a coveted spot in the "We Kicked Microsoft's Ass" hall of fame.
Phil Harvey (pharvey@upside.com) writes for UpsideToday.
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