Citigroup on Audible: Long Term Opportunity "Material", Risks "Significant" (ADBL)

| About: Audible, Inc. (ADBL)

Mark Mahaney Smith Barney CitigroupCitigroup analyst Mark Mahaney on Audible's (ADBL) Q4 earnings results:


• ADBL posted an In-Line Dec. Quarter (had negatively pre-released on 01/10) -- $18.0MM revenue (up 75% Y/Y) & $0.09 GAAP EPS loss. ADBL did not provide guidance other than to say that op. loss will improve going forward.

• Fundamentals deteriorated -- Audible’s revenue growth declined (arguably modestly) to 75% Y/Y from 81% in the September quarter. ADBL's operating loss ($3.6MM) was the steepest in at least 8 quarters.

• Our estimates are mostly unchanged. '06 GAAP EPS goes from $0.09 to $0.13 due to higher interest income and lower tax assumptions. We continue to model breakeven operating profitability for the full year.

• No change to Buy rating or $15.50 price target. Risks remain significant (very inconsistent execution, competition), but long-term opportunity (audiobook migration to mobile devices via the Net) remains material. We believe H2:06 profitability WITH strong subs growth can lead to share price appreciation.


Did Audible’s fundamentals improve? No. Revenue growth decelerated (arguably – modestly) to 75% Y/Y from 81% Y/Y in the September quarter. However, the operating loss of ($3.6MM) during the quarter was the highest in at least 8 quarters. While expected, this was clearly weakness in the fundamentals.

Were fundamentals better than the Street expected?
No/Yes. Revenues of $18.0MM were modestly lower than the Street expectations of $18.45MM. However, EPS loss of ($0.09) was slightly better than Street’s estimates of ($0.10).

Did the company raise guidance relative to the Street? No. Audible did not provide any guidance for the March quarter and 2006. However, the company committed to improving the operating loss level from the December quarter.