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RealNetworks Inc. Reports Operating Results (10-Q)

November 02, 2009 | About:
10qk

10qk

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RealNetworks Inc. (RNWK) filed Quarterly Report for the period ended 2009-09-30.

RealNetworks Inc. is a leading provider of branded software products and services that enable the creation and real-time delivery and playback ofaudio video text animation and other media content over the Internet andintranets on both a live and on-demand basis. RealNetworks' products andservices include its RealSystem G2 a streaming media solution that includes RealNetworks' popular RealAudio and RealVideo technology an electronic commerce Web site from which RealNetworks distributes sells and promotes streaming media products services and programming. Realnetworks Inc. has a market cap of $481.18 million; its shares were traded at around $3.57 with and P/S ratio of 0.8. Realnetworks Inc. had an annual average earning growth of 52.9% over the past 5 years.

Highlight of Business Operations:

In our consumer segments, which include our Music, Games and Media Software and Services segments, we derive revenue through (1) subscriptions, (2) sales of content downloads, software and licenses, and (3) the sale of advertising and the distribution of third-party products on our websites and in our games. In the quarter ended September 30, 2009, we derived 56% of our total consumer revenue from subscriptions, 21% from sales of content downloads, software and licenses, and 23% from advertising and the distribution of third party products. In the third quarter of 2008, we derived 58% of our total consumer revenue from subscriptions, 23% from content downloads, software and licenses, and 19% from advertising and the distribution of third party products. In our business-to-business Technology Products and Solutions segment, we generate revenue primarily by providing services that enable wireless carriers to deliver audio and video content to their customers and through sales of software licenses and products and related support and other services to broadband and mobile carriers. In the third quarter of 2009, we derived 82% of our Technology Products and Solutions revenue from application service provider (ASP) services provided to wireless carriers, and 18% from software licenses and services. In the third quarter of 2008, we derived 77% of our Technology Products and Solutions revenue from ASP services, and 23% from software licenses and services.

Music. Music revenue primarily includes revenue from sales of our Rhapsody and RadioPass subscription services; sales of digital music content through our MP3 music store; and advertising through our music websites. These products and services are sold and provided primarily through the Internet and distribution partners, and we charge customers credit cards at the time of sale. We charge our subscription customers either monthly, quarterly or annually, depending on the service purchased. In the quarter ended September 30, 2009, subscription revenue comprised 79% of total Music revenue, sales of music downloads comprised 14%, and advertising and other revenue comprised 7%, compared with 77%, 13% and 10%, respectively, in the quarter ended September 30, 2008. For the nine months ended September 30, 2009, subscription revenue comprised 81% of total Music revenue, sales of music downloads comprised 14%, and advertising and other revenue comprised 5%, compared with 79%, 13% and 8%, respectively, in the nine months ended September 30, 2008.

In the quarter ended September 30, 2009, total Music revenue declined to $38.8 million, or 7%, from $41.6 million in the year-earlier quarter due to declines in subscription revenue and advertising revenue. Revenue from our subscription music services fell 5%, to $30.5 million in the quarter ended September 30, 2009, compared with $32.2 million in the quarter ended September 30, 2008. The decline in subscription revenue was primarily driven by a decrease in the number of subscribers to our Rhapsody service. Advertising

During the nine months ended September 30, 2009, total Music revenue increased to $123.3 million, or 6%, from $116.8 million in the year-earlier period due to increases in subscription revenue and sales of music downloads. Revenue from our subscription music services rose 9%, to $99.5 million in the nine months ended September 30, 2009, compared with $91.6 million in the year-earlier period. Subscription revenue growth was primarily driven by an increase in subscribers from the launch of the Rhapsody service with Verizon Wireless in the middle of 2008 and the one-time migration of Yahoo! Music Unlimited subscribers to our Rhapsody music service, which was completed during the third quarter of 2008. Revenue from digital music tracks sold during the nine months ended September 30, 2009, rose to $17.6 million from $14.9 million, an increase of 18%, largely due to increased purchases from our MP3 store by consumers since its re-launch on June 30, 2008. These increases were partially offset by a decline in advertising revenue of 41% to $6.1 million from $10.3 million due to a reduction in demand for online advertising and for sponsorship revenue. No other single factor contributed materially to the change in total Music revenue during the period.

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