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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: Clappy who wrote (25911)	7/19/2000 7:21:10 AM
From: Voltaire	Read Replies (2) \| Respond to of 35685

Tuesday July 18, 5:59 pm Eastern Time worldlyinvestor.com Sector of the Day Realizing Value on the Web By Mitch Ratcliffe, Columnist RealNetworks' streaming technology has set the company on the road of sustained profitability. RealNetworks (Nasdaq:RNWK - news) is looking like a winner these days. The company's stock is up almost 100% since its post-Net meltdown lows in the bottom 30s, and it has announced a strategic relationship with America Online (NYSE:AOL - news). Can it go on? Today, RealNetworks reported second-quarter earnings of six cents a share, beating consensus estimates by a penny -- this after dipping into negative territory in the first quarter. It looks like the beginning of a sustained profitability picture. Analysts expect between 50% and 60% earnings growth over the next five years: W.R. Hambrecht & Co. initiated coverage with a ``buy'' recently, saying the company will produce approximately 30% growth in earnings over three years. The question is, will Microsoft (Nasdaq:MSFT - news) be able to use its dominant operating system position to attack RealNetworks' 85%-plus marketshare in browsers? Based on the usage we see at ON24, a streaming news site, actual usage of RealNetworks client software represents more than 90% of the market. Nevertheless, Microsoft gives away both the client, or player, software and the Windows Media server, putting tremendous price pressure on RealNetworks. A Real Strategy Now, if anyone knows how Microsoft operates, it's RealNetworks CEO Rob Glaser. He was a senior Microsoft executive before starting his streaming-technology company. He's successfully fended off Microsoft attacks for years and, with an eye to the future, seems to have all the revenue ducks in a row to sustain growth even if market share declines, which is almost inevitable given RealNetworks' staggering position today. First, RealNetworks keeps Microsoft close, having licensed its audio/video codecs to the Redmond Horde, so that the Windows Media Player can work with RealNetwork files. This produces about $2.5 million per quarter in revenue for RealNetworks. Until the Department of Justice won its antitrust case against Microsoft, the company was actually paying content developers to make programming available in Windows Media format. Now, in the wake of the DOJ's success in court, Microsoft is taking a less aggressive tack, offering extensive promotion of content delivered in its streaming media format. While Microsoft fiddles, RealNetworks is extending its revenue base. License fees for the Real Player and Server increased 91% year over year during the first quarter and service fees, paid for upgrades, support, consulting and media hosting, were up 110%. Most significantly, advertising revenue shot up 564% over the first quarter of 1999. Each of the legs of this revenue stool is highly scalable. The cost of producing new versions of the Real products is rising, 53% year over year, but falling as a percentage of revenue -- to 22% in the latest first quarter from 31% in the year-ago quarter. Likewise, service fees can be managed for increased margins in a variety of ways, by increasing the productivity of support engineers or as simply as raising upgrade fees. Improving Picture The advertising picture is especially rosy in the next six to 10 quarters, because higher CPMs (cost per thousand) ad rates are migrating away from banner ads to streaming media. I say the picture improves for six to 10 quarters because we may see the same decrease in streaming CPMs that we have in the banner space after initially strong predictions for revenue growth for banner-supported sites. If the company can sustain revenue growth of 25% to 35% year over year, which I think is very doable given the migration to broadband and wireless-streaming services predicted for the next decade, Earnings growth should exceed current expectations by 50% to as much as 70%. In that case, RealNetworks looks like a $95 stock, making this a ``buy'' in my opinion at today's closing price of $58. I'd be accumulating RealNetworks through the fall. Ratcliffe is vice president and editor-in-chief of the ON24 Network, a personalized financial broadcast network for individual investors. He is also longtime executive and investor in the tec

To: Clappy who wrote (25911)	7/19/2000 7:35:07 AM
From: bonnuss_in_austin	Respond to of 35685

Clapston -- What a great link ... ... for writing calls. Thanks for bringing it here! b-i-a ###