Is Real Networks' Music Business Dramatically Over-Valued?

Kit Spring, an analyst at Stifel Nicollaus, provides a rather disturbing notion today regarding the valuation of RealNetworks (RNWK). Spring points out in a research note that Napster (NAPS) recently bought 350,000 music subscribers from AOL (TWX) for $15.66 million, or $45 a subscriber, or 0.3x revenue.

Depending on which metric you use, Spring says, that implies a value of either $77 million or $25 million, respectively. That represents 6%, or 2%, of the company’s $1.4 billion enterprise value, he notes, versus 32% of revenues.

Nothing really that new, but an eye-opening way to look at the numbers. Writes Spring: “We continue to believe investors are over-excited about RNWK’s business model and we reiterate our Sell rating. We believe shares could see $9 based on our sum-of-the-parts analysis,” which yields a valuation range of $7.43 to $10.64.

Real’s shares today fell 18 cents to $10.58.

RNWK 1-yr chart