Perhaps among the cacophony of guidance revisions, gyrating oil prices, and presidential election polls, investors yesterday only had enough time to scan announcements and focus on the negatives.
How else can one explain the market's reaction to Audible's
What's not to like? Audible posted its second profitable quarter, with earnings of $0.02 per share, in line with analyst estimates. Total revenues for the quarter rose 87% compared with last year and 15% over the previous quarter. The company added 40,000 new subscribers, kept churn at its historical 3% rate (Audible doesn't report total subscriber levels, only monthly additions and churn levels), and raised revenue guidance for the 2004 fiscal year by about 10%.
One possible area of concern is the rise in costs of acquisition from $40 to $45 per subscriber. But with an expected lifetime value of each subscriber north of $400 and predictable purchasing levels, the increase isn't as concerning as it would be for an outfit like Netflix
Amid such great news, Audible's stock probably initially dropped due to its valuation and the market's expectations. The stock has been on a tear, rising by almost 500% since being put on the Motley Fool Hidden Gems Watch List in November 2003 and written up in a Fool commentary. Back then, the company was a true undervalued penny stock. Today, with a hefty price-to-earnings ratio of 65 on expected 2005 earnings of $0.35 and shares trading on the Nasdaq, it's in a different category.
Why does Audible carry such a premium? And, more importantly, is it worth it?
Its exclusive deal with Apple
With its earnings projected to grow 40% annually over the next half-decade and CEO Donald Katz's legitimate mention of the similarities between Audible's business model and that of Netflix from 2002 to early 2004, it's difficult to call the company overvalued. Like Starbucks
With a market capitalization of over $400 million, Audible may very well have a place as a speculative play in the corner of your portfolio.
Take a free trial to Motley Fool Hidden Gems today. Find out which small, undervalued companies Tom Gardner and his band of merry analysts are uncovering.
Fool contributor Marko Djuranovic owns shares of Netflix and no other company mentioned in this article. He wonders if any of the Motley Fool audio books available on Audible's website are read by David or Tom Gardner.