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Thursday, 4 August 2005
A Reader Writes, "What do you think of RNWK?"
Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice. As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisors prior to making any investment decisions based on information on this website.

I received a comment from one of my Xanga friends, "Rise" who wrote:
Bob, what do you think of RNWK?
Thanks
Gosh, now that was getting to the point! First of all, I do not own any shares of RNWK, nor do I own any options. And as Rise knows, I cannot even predict which way the stock price is going to move! But let me see what I think about the company based on the screens that I usually do.

First of all the price: RealNetworks (RNWK) closed at $5.36, down $.09 or (1.65%) on the day. (The stock is down another $.06 or (1.12%) in after-hours trading.

According to the Yahoo "Profile" on RNWK, the company "...and its subsidiaries provide network-delivered digital media content and services worldwide. It also develops and markets software products and services that enable the creation, distribution and consumption of digital media, including audio and video." As noted, two of the biggest products for RNWK are the RealPlayer service, and the Rhapsody music download service.

As I like to do, and as Rise is sure to know, the first place I go to review stocks is the latest quarter results. On August 2, 2005, RealNetworks reported 2nd quarter 2005 results. Revenue grew nicely, up 26% to $82.7 million from the prior year. Net income came in at $4.7 million or $.03/share, compared to a net loss last year of ($4.6) million, or ($.03)/share. This appears to have been a solid quarter for RNWK.

How about longer-term? Looking at the "5-Yr Restated" financials on Morningstar.com, we can see that revenue was actually declining between 200 and 2002, when it dropped from $241.5 million to a low of $182.7 million in 2002. However, since then revenue has grown steadily to the $282.9 million reported in the trailing twelve months (TTM).

Earnings show a steady improvement, albeit with losses between 2000 and 2004, improving from ($.72) in 2000 to a smaller loss of ($.08) in the TTM; clearly the turn to profitability as reported above, is a recent phenomenon.

Free cash flow has also been "in the red" with ($7) million reported in 2002, improving to ($3) million in 2004, but a positive $4 million is noted in the TTM.

The balance sheet looks solid with $39.6 million in cash and $352.1 million in other current assets, easily covering the $103.5 million in current liabilities and the $121.2 million in long-term liabilities.

Taking a look at the "Key Statistics" from Yahoo on RNWK, we can see that this is a mid-cap stock with a market capitalization of $917.29 million. The trailing p/e is N/A (the company has been losing money until recently), and the forward p/e is a high 53.60. Thus, the 5 yr estimated PEG is rich at 6.05.

Other key statistics include the Price/Sales of 3.30. Yahoo reports 171.14 million shares outstanding with 117.06 million that float. Currently there are 5.52 million shares out short, representing 6.7 days of trading or 4.70% of the float.

No cash dividend is reported and the last stock split was a 2:1 in February, 2000.

What about the chart? Looking at a "Point & Figure" chart on RNWK from Stockcharts.com , we can see that the stock has been sliding lower since January, 2002, when it was trading at $21/share. The stock recently has rallied off a large correction with a low-point of $2.75. The company has recently moved off a low, but is now hitting resistance at the $7 level.

So what do I think? Well, I certainly am familiar with their Real products! The stock price is under $10 which is a negative in my bood (I have been greatly influenced by William O'Neill who believed strongly in avoiding these "lower quality" stocks...but I do think you can find some good investments among them.

The latest quarter was very good with a strong growth in revenue and profitability. O.K., so I would rather see a stock with a longer record of making money, but this turn to profitability might indeed be the start of something good. And the last five years; well, the stock was showing reduced revenue until 2002, but it appears to have turned the corner. The same goes with free cash flow which is also now positive, and the balance sheet is solid. The key parameters on this company are a bit pricey with a P/E over 40, a PEG over 6, but the large short interest could possibly help. However, even the chart looks a bit anemic with a real reluctance of traders to bid this stock over $7, failing three times in a row to surpass that price level!

In conclusion, the stock is a bit more speculative that I would like to invest in. I do like the return to profitability, but would rather see a longer history of profitability. So if you choose to buy this one, well "good-luck" my friend! It may turn out to be a fabulous investment, but it is just a bit beyond what I consider to be investable.

If you have any questions or comments, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.

Bob


Posted by bobsadviceforstocks at 9:31 PM CDT | Post Comment | Permalink

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