Foolish Forecast: Audible Sounds Iffy

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Tomorrow, downloadable spoken-word content provider Audible (Nasdaq: ADBL) will announce earnings for the second quarter of 2006. Will this promising company again disappoint analysts and investors? Read on.

What analysts say:

• Buy, sell, or waffle? Three say buy, six say hold, and one says sell. No change over the last three months.
• Revenues. The consensus is $21.5 million, some 40% ahead of last year.
• Earnings. Last quarter the company badly disappointed with a $0.12 EPS loss. This quarter, analysts expect a $0.05 EPS loss. Hopefully the company will at least come close.

What management says:
In announcing first-quarter results, Donald Katz, chairman and CEO, said, "We are extremely encouraged by the early customer response to our new membership plans in terms of consumption levels, customer retention rates, and much higher levels of customer satisfaction. We continue to feel confidant about a business plan that shows continued growth and improving profitability for the rest of the year."

This year the company expects to be profitable on an operating basis. Next year, analysts expect it to be profitable on a net basis, as well. Lower churn and lower acquisition costs from the new business plan, first seen last quarter, will definitely help here.

What management does:
After holding steady for a while, gross margin has slipped a bit on a rolling 12-month basis and sales growth is down for the fifth quarter in a row. We'll see if having six months of the new business model under its belt will show a slowing down or reversal of those trends. Though I will admit that asking the company to continue to grow revenue by over 50% every quarter is probably a bit much, at least over the long term.

Margins % *	12/04	3/05	6/05	9/05	12/05	3/06
Gross	58.4	58.6	59.3	59.3	57.3	55.6
Operating	3.1	3.9	3.8	0.9	(5.5)	(11)
Net	5.9	7.1	7.2	5	(1)	(6.5)
Sales Growth % **	75.1	90.5	89.7	80.7	79	52.8

* Trailing-12-month data for quarter ended in month indicated.
** Year-over-year comparison for quarter ended in month indicated.
All data from relevant company 10-Q and 10-K filings.

One Fool says:
The company continues to show a lot of promise, in my opinion. For instance, it continues to ink new deals, such as being pre-loaded on Sony Ericsson's new smartphone, and sales via AppleComputer's (Nasdaq: AAPL) iPod service continue to grow. It also helps drive the market forward for audio publishing, with some books now being published only in an audio format.

The rest of this year will show whether Audible can make money at this game or not. It reworked its membership plans, and while that showed early promise last quarter, whether it will work over the long term is still a bit unknown. The company is still in transition and remains a risky stock to own. If it can at least come close to analysts' projections, that might indicate that a corner has been turned. If it misses handily again, though, it could throw doubts on the whole spoken-word business model. I'll be holding my breath come tomorrow.

Competitors:

• Apple
• Amazon.com (Nasdaq: AMZN)
• MediaBay (Nasdaq: MBAY)
• Barnes & Noble (NYSE: BKS)
• Borders Group (NYSE: BGP)

Amazon is a Motley Fool Stock Advisor recommendation. For more superstar picks from Tom and David Gardner, try a subscription on for size, free for 30 days.

Fool contributor Jim Mueller owns shares in Audible, but no other company mentioned. The Fool has an ironclad disclosure policy.