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Summary
conference date: May 17, 2006
for quarter ending: March 31, 2006 (4th fiscal quarter)
Overview: A fair quarter for subscriber and revenue growth. New web site launched since the quarter ended promises some ad revenue and lower subscriber acquisition costs.
Not discussed: The big problem is Microsoft bundling a rival music rental service into MediaPlayer 11, coming soon.
Basic data:
Revenues $26.8 million, up 14% sequentially and 54% over the prior-year's quarter. GAAP net loss of $4.4 million is a major improvement over year-ago and prior quarters.
Paid subscribers ended at 606,000 including 59,000 student subs. Non-student paid subscribers climbed 16% sequentially.
Ended with $104 million cash, so burned $7.4 million.
Guidance:
The current quarter has been seasonally weak in the past. Guidance
is revenues of $25 to 28 million, with increased expenses due
to new Web site creation costs and a one-time charge for Germany
startup. $16 million in net loss projected for this quarter, which
includes beginning stock-based compensation of about $1 million
per quarter.
Conference Highlights:
Believes can reach profitability with current cash. Believes launch of new Web site got incredible news coverage; visits have increased sharply since the new launch; links to Napster are appearing rapidly around music community. Does not seem to be losing paid customers to free service. Working on ad model because type of music chosen exposes demographics without intruding on privacy.
Cell phone handset manufacturers are about to start shipping massive numbers handsets that will allow Napster services to be used (they will have WMA subscription-enabling technology built in.) Ericson partnership will enable future mobile carrier agreements.
Napster Japan still on track for 2006 launch.
International revenue grew to $3.4 million (13% of total revenue). 87% of total revenue was from subscribers and paid downloads. Gross margin improved from 27% to 28%. R&D was down to 2.9 million.
Q&A:
Subs needed to break even? No specific guidance, but good progress on model. As marketing expense goes down, and churn goes down, possible to reach profitability.
Wireless? Analyst believes wireless co's won't partner with Napster. Some larger ones won't but advantages for many of the 2nd tier carriers.
1.9 million visitors to Web site in April, plus volume up another 133% since launch.
XM + Napster? Pioneer devices are just now shipping, so too early to report.
Napster links? Is only tracking in a rudimentary way so far, so will not have stats until later.
Wireless build out? Will see in Asia and Europe first, they are ahead in providing the necessary technologies.
New subs from Web launch? Only been 2 weeks. No great increase in sub adds yet. Purposefully designed a slow-sell strategy; hook first, then encourage subs. Did see 15% increase in track sales.
Continued marketing expense? Yes, but need to get viral propagation going. Napster links could help greatly. Level of visits is building.
June quarter ad revenue? Will not be broken out as a line item until later in the year.
Web development costs were capitalized ($3 million), will see some expense from them as amortized (over 3 years).
Fall launches of MP3, Napster-compatible devices? Some are already available, like Samsung G5, which is selling extremely well. Excited that more compatible MP3 players are on the way. Just about everyone has joined the WMA camp.
SunCom, which has about 1 million customers? Will launch in June.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision from multiple independent sources.
Copyright 2006 William P. Meyers