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RealNetworks has cash but no one cares

Posted Jan 04 2008, 06:28 AM by Kim Peterson
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People just don't care about RealNetworks anymore. Bear Stearns analyst Kunal Madhukar put the company's situation bluntly in a client note yesterday, saying that "current disinterest almost verges on apathy" toward the stock. Ouch. Real's shares have had a disappointing year, falling some 40% in the last 12 months to the $6.20 range. 

Shouldn't investors like this company more? If just for the fact that it's sitting on $600 million in cash?

RealNetworks is smack in the middle of some of the hottest areas in tech: music and PC games. But those businesses are growing too slowly on the company's balance sheet.

Take Rhapsody, for example. It's a solid music subscription service, and the company has won some nice distribution agreements for it. But music revenue only grew by a couple million dollars in each quarter of 2006 and 2007, and hit $38 million in Q3. In gaming, RealNetworks has been snapping up studios to become one of the top casual games producers for the PC. Those acquisitions have helped, but game revenue was still only $29 million in Q3. (See more financials here).

At least one area of the company has strong momentum: mobile services. RealNetworks offers wireless carriers ringback tones, music-on-demand and back-end delivery systems. That revenue hit a record $53 million last quarter.

RealNetworks has never been a profit powerhouse. But it doesn't deserve the kind of investor apathy it's getting. With a key MTV deal under its belt and continued progress in games and mobile, the company should see brighter days ahead. Madhukar is right when he says that Real's low share price is a good entry point for investors.

Disclosure: I don't own any shares of RealNetworks.

Comments

 

Maybe apathy is born of familiarity and familiarity breeds contempt.  Real wants to attract your business and provides a good, very good, even excellent  player, but thats where the fun ceases and strong feelings of contempt begin.  Real pounces with both feet flailing and doesn't give up until you buy something or hide in the bedroom until the fuller brush man is gone.  I'm hiding.  Makes you feel like a prisoner to their marketing again, and again, and again.  Am I talking about the energizer bunny here?  I turned them off my  default and wouldn't have it my computer at all except some companies only use their player.  Tenacity is one thing, obnoxiousness is another.

RealNetworks suffers from a serious leadership problem - period. They (as in their creative department) lack any type of vision for the technology they possess. They're media player is unreliable and at times, very annoying. Everyone either uses windows media player, apple itunes, or any other 3rd party software to play thier media. And this is either because of the flashy style of GUI that is offered or the content that is available or exclusively made for the player.

What Real needs to do is develop more products (i.e. their software media player or hardware for their player) and/or content, improve the user experience with their products, and for GOD's sake, market themselves. No one even knows that RealNetworks exists (talking from the average home user). Also - to make themselves more marketable, they need to make their media player software accessable to user modiability - e.g. youtube style.

I stopped using Realplayre as my default media player because there was not easy or seamless way to load my ipod with the music in my Realplayer library. I was just easier to start using iTunes. I'm a Superpass member and I didn't like the way they changed their news content on the Superpass home page. It's all fluff and no real substance anymore.

The Real player gets worse with newer version.

Investors save your money, run for the Hills, like sub-prime people are doing...dumping and more dumping...food for thought...

I disagree.   I use Real Player almost excusevly and have never had a problem.

Windows meadia player is good too, but I rather use the real player.  The real player downloads movies faster the windows player.

When I put one of my 300 music CD's into my tower, I find Real Player easier to use.

Personally, I find the RealPlayer method of pre-loading onto many OEM builders' computers and then trying to annoy me into it buying it only provokes me into removing it.  It's idiotic that too many businesses think they can annoy you until you buy their product.  For my music, I use iTunes, I had it before my iPod and the store is there if you need it, but it isn't in your face all the time.

RealNetworks has nothing in its portfolio to feel good about (declining media player; music service fighting with NAPS for scraps left over from Apple; lifeless video service; flat casual games service-- in an industry that is growing.  Even the wireless service business, which was touted as a bright spot, is only bright because the company bought South Korea's WiderThan last year (for over $300m). Naturally, this adds to their wireless revenues; however, it appears that RealNetworks can even screw up WiderThan-- no synergies seem to have emerged.  Finally, the company churns through senior execs like no other listed company. They have no one at a senior level with any expereince or depth of knowledge. It is a trainwreck.

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