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Technology Stocks : RealNetworks (NASDAQ:RNWK) -- Ignore unavailable to you. Want to Upgrade?

To: Steve Antonelli who wrote (1501)	1/5/1999 10:48:00 AM
From: neverenough	Read Replies (1) \| Respond to of 5843

RNWK: WORKING THE REAL VALUATION GAP BETWEEN REALNETWORKS AND COMPARABLES-REITERATE BUY January 5, 1999 SYMBOL(S): RNWK ANALYST(S): POWERS, JOHN RATING: BUY Download PDF Synopsis: The following synopsis is qualified in its entirety by the more detailed information contained in the full research report, including the discussion of certain risks associated with an investment in this security contained in "Investment Risks." Research dated prior to September 1, 1998 was prepared by an entity that was acquired by BancBoston Robertson Stephens Inc. When RealNetworks is compared to other key Internet infrastructure companies, we believe that its stock is currently undervalued. Because streaming media will be a critical technology for enabling multimedia communication over the Internet, we find it useful to draw comparisons to other companies that sell Internet infrastructure products and we see a significant disparity in such metrics as Market Cap / Revenue ratios between RealNetworks and these other companies. More than 85% of streaming audio and video content available on the Internet is broadcast in RealSystem format. We believe that the company will continue to maintain this market share due to advanced technology, key distribution and technology partnerships, and our belief that Q4:98 was a strong financial quarter. At the end of October, 36 million individuals had downloaded the RealPlayer from www.real.com and, of these, 12 million had downloaded the newer RealPlayer G2 version. Moreover, recently announced partnerships with Netscape and AOL should further strengthen RealNetworks' consumer presence, in our view. As Microsoft (MSFT $141) continues to sell off its shares of RealNetworks, we feel that this pricing pressure opens an opportunity to buy RealNetworks. Microsoft announced in mid-November that it is selling its 3.3 million shares (approx. 10% of shares outstanding) of RealNetworks on the open market, and we believe that this sell-off has pushed the stock's price below the level at which we would expect to see it trade. Summary and Valuation. We believe that audio and video will be an integral component in the next generation of Web usage, and RealNetworks currently controls more than 85% of the market, as measured in the format of content broadcast over the Internet. At its current valuation, RealNetworks is trading at 19.6x our 1998 revenue estimate and 13x our 1999 revenue estimate. We compare RealNetworks to VeriSign (VRSN $60.00) and Inktomi (INKT $140.13) since all of these companies are providers of Internet infrastructure technology. VeriSign is currently trading at 42.4x our C98 revenue estimate and 18.7x our C99 revenue estimate. Inktomi is currently trading at 75.7x our C98 revenue estimate and 50.4x our C99 revenue estimate. At its current valuation, we rate RealNetworks a Buy. Comments or suggestions? Email your feedback to profedge@etrade.com. Note that you remain subject to the terms, conditions, and disclaimers specified in the User Agreement. © Copyright 1998 E*TRADE Securities, Inc. All Rights Reserved.