RealNetworks has cash but no one cares
Posted
Jan 04 2008, 06:28 AM
by
Kim Peterson
Rating:
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.