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

To: B. A. Marlow who wrote (1713)	2/13/1999 4:10:00 PM
From: B. A. Marlow	Respond to of 5843

Here's detail on Harmon's call from his compatriot, Mark Johnson: Internet Mergers and RealNetworks By Mark Johnson The following article is provided by the Internet Financial Connection. To receive the Internet Financial Newsletter via e-mail on a weekly basis, e-mail: ifc-request@mLists.net with the word "subscribe" in the body of the message. The Internet Financial Connection newsletter is edited by Mark Johnson. Visit the Internet Financial Connection on Silicon Investor at: techstocks.com February 9, 1999 Everywhere you look there is a major merger in the Internet industry. America Online bought Netscape in a deal that was valued at $4.2 billion. @Home is merging with Excite in a deal worth $6.7 billion. Yahoo! announced that they would merge with GeoCities in a deal worth $4.6 and would cede. This merger would give Yahoo! a 58% reach of the total Web audience. In the search for Internet users, larger Internet based companies will continue to search for and acquire companies that compliment and increase the number of users to an Internet company. Microsoft continues to make very smart but small acquisitions of smaller Internet companies with a niche. That list includes HotMail and LinkExchange. What is most important right now is that an Internet company must accumulate as many users as possible. The number of unique users is essential to the growth of any Internet company. Without users you cannot sell advertisements, e-tail related products and so on. One company that is sitting on a gold mine of registered users and accumulates a large number of new users on a daily basis is RealNetworks (RNWK 72 1/2). Real is a leader in the streaming media market. It develops and markets software products designed to enable users of personal computers and other consumer electronic devices to send and receive audio, video and other multimedia services using the Web (as taken from their web site). Real has more than an 85% share of the streaming media market. What is truly amazing about Real is that they have more than 50 million "unique" registered users, up from 20 million one year ago. This is not like the McDonald's sign where it says "Over 99 Billion Served," and only a few billion people on the planet. These are "unique" users and they are not counted twice. Their software is downloaded at a rate that exceeds 170,000 times per day. On October 19, 1998, Netscape and Real announced an agreement to distribute and include RealNetworks RealPlayer software with Netscape's Internet client software Netscape Communicator 4.5. Real also has strategic relationships with Intel, Lotus and Inktomi. Relationships with media companies include; ABC, CNN, ESPN Broadcast.com and the Wall Street Journal. Real is not shy about working with large and well known companies. What a large company (primarily an Internet related company) may want from Real is its large quantity of users. Perhaps before each software download (or maybe after) a list of questions could come up prior to the use of Real's software. These questions may include; "Would you like to know more information about our FREE Internet email address?," "Would you like to bookmark our search engine?," "Would you like to know more information about our online bill paying plan?....". Those are just hypothetical questions that could be asked to people that download Real's software. They could compliment a large web portal, or media company. A permanent link to a free email address could be embedded on the front of RealNetworks software. Everytime you use it, you would see it. Their software is already somewhat like a mini-web browser with search capabilities and links to access other complimentary sites. The question is, how much would someone be willing to pay for Real and who would it be? As noted above, a rather large Internet company would most likely be an ideal candidate. AOL (they have already acquired Netscape) would be the most likely candidate. One of their goals is to attract as many users as possible and they already have a distribution agreement with Real. By acquiring Real, AOL would be accumulating Internet users which help fuel their growth. The main thesis is that Real has a very large and growing user base. Their product could be expanded and complimented with other Internet services. That is why it would be smart for a company with deep pockets to pick them up while their stock is still relatively cheap. As for a buyout or merger, the price Real would fetch, based on other mergers in the Internet space, would be between $3 billion to $5 billion. BancBoston Robertson Stephens recently raised 99' revenue estimates from $95 million to $99 million. Since Real has a history of consistent sequential revenue gains, exceeding $100 million in revenues should be a rather easy task for them, I feel. With AOL's recent merger of Netscape, that will further accelerate the number of people that use Netscapes' browser and further accelerate the users that use Real's software. With Real having a market cap of $2 billion, their stock is a low risk way of entering the Internet space. In the event of merger or buyout, their stock could command, at the high end, close to $200. Their stock is not particularly overvalued, trading at 20 times 99' revenues. It may seem expensive but it is really a fair valuation for an Internet stock. They have a brand name that everyone knows and most Internet surfers use. The shareholders of Real will reap the rewards of a rock solid Internet company that has their own special niche. Even without a merger or buyout, their shares should double within the next 18 months, based on a strong brand name and their ability to accumulate registered users. Keep in mind that their stock is very volatile and can move in spuratic price swings in both the up and down direction. Mark Johnson Editor IFC (DISCLAIMER: The information is believed to be reliable but there is no guarantee to its accuracy. The stock idea mentioned above is not a solicitation to buy or sell. I (Mark Johnson, Editor of the IFC) am not paid any fees by the companies represented. The stock idea may represent a starting point for investors. People are encouraged to do their own homework before buying any stock and are also encouraged to contact an investment professional before buying any securities. Neither Silicon Investor nor the Internet Financial Connection will be responsible for any loss occurring from the purchase or sale of the above securities or any securities.) scitechinvestor.com