Don't let the penny-stock share price trick you. Napster (NASDAQ:NAPS) is in its best shape ever, after last night's earnings release showed the company pulling off its second consecutive quarter of positive cash flow.

Revenues climbed 24% higher to $31.6 million during Napster's fiscal second quarter, and net loss narrowed by 43% to $0.12 a share. There was a sequential dip in paid subscribers, from 770,000 at the end of June to 750,000 at the end of September, but the company writes off that drop as part of historical quarterly patterns. The company did score a sequential uptick in subscribers during last year's fiscal second quarter.

Napster continues to land sweet distribution deals outside its standalone music-subscription service. Whether it's mobile streaming through AT&T (NYSE:T) or digital downloads through XM Satellite Radio (NASDAQ:XMSR), Napster gets around for a company whose shares are stuck in the $3 neighborhood.

Sure, this isn't the finest hour for music providers. Unless you happen to be Apple (NASDAQ:AAPL) with its dominant digital-music leadership position, the market seems to have forgotten you. Just check out some of the other music enablers trading for a few bucks.

  • Digital Music Group (NASDAQ:DMGI) -- $2.26 -- is wrapping up its acquisition of digital distributor Orchard. Collecting digital royalties from several sources, including Apple's iTunes, should be a juicy, high-margin business. It hasn't panned out that way.
  • Spanish Broadcasting (NASDAQ:SBSA) -- $2.51 -- runs 20 popular Spanish-language FM music stations. Latin music is on the rise, right? Sure, but Spanish Broadcasting has missed analyst estimates in three of the past four quarters.
  • Sirius Satellite Radio (NASDAQ:SIRI) -- $3.12 -- is a victim of its bloated share count. With 1.5 billion shares outstanding, it's not as if the stock is cheap based on its share price. However, the company continues to grow quickly as the satellite-radio star posts narrower losses.

See? Napster has company. However, the real takeaway from the report is Napster has now strung together two straight quarters of positive cash flow. Big deal, you say? It is. If the company is no longer a net destroyer of greenbacks, its cash-rich balance sheet becomes sturdier. The company has $1.57 per share in cash and investments on its balance sheet. As long as it's able to grow its cash at a faster clip than it dilutes its shares outstanding, Napster's downside risk is limited.

Now let's see it deliver on the potential upside.

Just press play:

Longtime Fool contributor Rick Munarriz is a huge music fan, but with subscriptions to both satellite radio services, he hasn't made the move to tack on a digital-music subscription service as well. Still, he does enjoy the FreeNapster.com service. He does not own shares in any of the companies in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.