- ThinkEquity notes RNWK delivered solid 2Q results of $136.2M in revenues and its first organic quarter of GAAP profits of $0.01. Real is continuing to see strength in games (particularly in-gaming advertising) and mobile messaging and entertainment, both of which performed well in the Q. However, shares currently trade at 1.2x revenue, or roughly at the same value ($6.75) as the company's cash plus what the firm believes it could sell its games business for on the open market. While the quarter was not a home run, they believe shares, boasting over $3 in net cash, do not reflect Real's true fundamental value. While Real's 2Q was not a homerun, it did deliver growth, and organic profits, and the firm believes the company is on track to hit the high end of its guidance.
Given its disparate, yet tangential operating lines (music, games, software/media player, and wireless), they believe the best way to value shares is via sum of the parts. Think's revised sum of the parts analysis comes up with a fair value of $9.80-$12.40, or a midpoint near $11 for RNWK shares. Maintains Buy.
- Kaufman says they are keeping their Buy rating on RNWK while lowering price target to be more in line with the company's in their group that are at a breakeven/ just positive level. Firm now has $10 price target (previously $13.50) on the shares, which is about 2.0x estimated EV/2008E revenues.
Of particular note in the quarter, music revenues came in better than expectations at $36.8 million with 22% year-over-year growth. Games continue to be a strong growth driver coming in at 17% year-over-year growth. In the quarter, the systems business management stated that the company delivered 20.5 billion intercarrier messages.
RealNetworks continues to slightly exceed expectations. Kaufman believes that having both the content and delivery platform under one roof make Real a provider of choice to many wireless providers.
Notablecalls: Yeah, RNWK's quarter was no home run but the company is making progress. The stock got pounded after announcing better than expected results in May. The reason? The iPhone and its feared impact on RNWK's music business. Yet, looking at the music revs announced yesterday one can see these were actually good or even better than expected (Kaufman's number was around $36 million vs. 36.8 million actual).
I don't think RNWK should sell at $7 following yesterday's announcement. It should go higher. I'm making a long call here. Actionable!