Don't Go Yet, Audible!

Do not go gentle into that good night, Audible (Nasdaq: ADBL  ) ! The digital audiobook specialist has agreed to join forces with Amazon.com (Nasdaq: AMZN  ) , like so many promising young companies before it. The Internet Movie Database, dpreview, Alexa, and PlanetAll spring to mind -- some of which survive as separate entities today, while some have become nothing more than features of Amazon's shopping site.

Amazon is willing to pay $11.50 per share, a 23% premium to last night's closing price. Generous, right? After all, Audible hasn't reported a quarterly profit since 2005, so Amazon is overpaying for a money-losing business.

Wrong. This deal is a crying shame. (Fellow Fool Rick Munarriz also agrees, calling the premium a "pittance.") If Audible shareholders have any sense, they'll hold out for a better bid or just turn down all comers for now. The company has seen sales accelerating over the past year, and profitability is within reach. Trailing free cash flow has been positive for two quarters in a row already.

%

Q3 2006

Q4 2006

Q1 2007

Q2 2007

Q3 2007

Revenue Growth (YOY)

19.4

26.8

28.1

35.6

37.9

Net Income Margin

(12.6)

(4.0)

(4.8)

(0.5)

(0.7)

Data source: Capital IQ, a division of Standard & Poor's.

Back in October of 2005, I was but a fledgling Fool on a free 30-day trial of the Rule Breakers newsletter. The team dropped hints about the next set of newsletter picks, including a subscription-service provider with a bright future. I thought that would be Audible (but it was really XM Satellite Radio, which has lost its Rule Breaker status since then). The inherent attraction of listening to books makes so much sense when you think about the millions of frustrated commuters stuck in traffic for hours every day, for whom soaking in some fine literature would be a welcome relief. And that was before the Apple (Nasdaq: AAPL  ) iPod phenomenon really took off, putting Audible-compatible listening devices in the hands of millions of prospective subscribers. I'm a believer in this business to the bitter end -- if that's what this is.

Rick, who's also a Rule Breakers analyst, recently singled Audible out as a potential lucrative stock under $10, and Amazon's offer is 19% lower than a 52-week high that was set just three months ago. I never did buy the stock despite all this fandom, but I'd still like to have the opportunity -- and shareholders should be more richly rewarded. While a combined Amazon-Audible operation might make technical and operational sense, there's still plenty of low-hanging fruit for a stand-alone Audible.

Rage, rage against the dying of the light!

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