CDNW - Jenna, here it is in case you haven't seen this.
NEW YORK (CBS.MW) -- CDnow's stock spiked 21 percent on Friday on renewed speculation the Internet music vendor is a takeover candidate.
CDnow (CDNW: news, msgs) jumped 3 7/16 to 19 3/8 with 4.5 million shares changing hands -- some six times its average daily volume -- as talk circulated that Time Warner (TWX: news, msgs) or BMG, a unit of Bertlesmann, was nearing a stock-based deal to acquire the company.
Officials from the Jenkintown, Pa.-based company were mumt. "We don't comment on market rumors," said spokeswoman Merlo Zoda.
CDnow, which completed its merger with New York-based rival N2K this year, has been seen as a merger partner before.
"There has always been speculation that it could be Time Warner," noted analyst Steve Frankel at Adams Harkness.
"On their own, they've been fairly sleepy," said Stephen Hall at venture capital firm Prospect Street Partners. "If a media company wanted to build an Amazon-like platform -- CDnow makes sense, given its multiple"
Some analysts say that the $335 million company has become more vulernable as Amazon.com (AMZN: news, msgs) moves quickly into selling music online.
"In the retail space, especially when it comes to content which is digital, there's really only room for one or two players, and CDNow, on its own, cannot compete against Amazon," said Scott Appleby at ABN Amro. "They'll need some muscle in the virtual world."
The Amazon.com specter plays a big part of CDnow's valuation, which looks cheap compared to other e-tailers at 2 times forward-looking sales, and given the growing popularity of music online.
CDnow sales growth?
CDnow is posting sales growth, but not at the explosive rate that investors are pricing into the leading players on the Internet, analysts noted.
CDnow and N2K combined sales last year totaled $100 million, according to Friedman Billings & Ramsey, which expects sales of $167 million this year, a 67-percent increase.
Amazon's music sales totaled some $40 million in the first quarter, Merrill Lynch estimates. Appleby expects Amazon's fourth-quarter sales were $33 million.
The First Call consensus estimate for CDnow sales for the first quarter are $21.3 million, typically the slowest quarter for sales of the year, but nonetheless well below's Amazon.com's for the quarter.
CDnow is scheduled to report its first-quarter results on May 5. Analysts surveyed by First Call are looking for a $1.03 per share loss vs. a 78-cent loss a year ago. Friedman Billings & Ramsey is looking for a $1.10 per share loss. |
