If we're living in a digitally-delivered age, why is RealNetworks
If we're going to reverse-engineer this puppy, we may as well start with last night's report. On the surface, it's a winner. Revenues soared 55% to a record $145.1 million. Earnings clocked in at just $0.03 a share, although adjusted profitability did come in slightly higher than last year's showing.
There was strength where one expects it -- games (up 28%), music (up 24%), and technology products (up a whopping 377%) -- although weakness in media software and services (down 14%) was a downer.
So what's the problem? Well, all of the growth wasn't organic. The company spent $350 million in acquiring South Korean ringtone specialist WiderThan, a purchase that led to the initially impressive 377% spurt in technology products. There's nothing wrong with peppering organic growth with a few buys.
The bigger problem here is the income statement. The profit is a bit of a mirage. The company actually posted an operating loss of $15.4 million during the quarter. Interest income and gains as a result of the formation of Rhapsody America with Viacom's
Yes, interest income is a big part of the RealNetworks story. The company was flush with cash, even before a favorable settlement with Microsoft
Unfortunately, it takes more than money to get a company out of a funk. It's been more than six years since shares of RealNetworks poked their heads into the teens. Music rival Napster
So when will RealNetworks turn itself around? Not in the current quarter. The company expects to post a profit between $0.00 and $0.01 a share, on $152 million to $157 million in revenues. Yes, it will be another record quarter on the top line, but do I need to spell out the bottom line for you? Even worse, the company is good for another $7 million in interest income in that bottom-line figure, masking another operating loss at RealNetworks.
Poor company. You're in the right place at the right time, but still turning out to be the wrong investment.
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Longtime Fool contributor Rick Munarriz doesn't have the URGE to sign up for a digital music subscription service, although he loves his music. He does not own shares in any of the companies in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.