The NEXT company in my ongoing series of the top 25 stocks for the NEXT 25 years is RealNetworks, Inc (NASDAQ: RNWK). This Seattle-based company has a market capitalization of $1.3 billion. RealNetworks is an early player in digital media products and in the delivery of such products. RealNetworks already has an international scope with penetration in the United States, Asia and Europe.
RealNetworks markets and develops proprietary software products that enable the creation of digital audio and video. The company sells a distributed music service called Rhapsody, which is membership based. The company also offers RadioPass, an internet radio subscription service. The RealPlayer Music Store allows for customers to purchase and download music tracks, music news and other music content, as well as digital games. RealNetworks is a soup-to-nuts service to its retail customer base.
The other strength and growing component of the business is the product suite of software and services offered to the wireless carriers, cable companies and other communications companies. They, in turn, can provide digital media content to their mobile phone customers and directly to PCs. Part of the technology set allows for video-on-demand and music-on-demand. RealNetworks sells and distributes its product and services through several third-party vendors and retailers. It also markets itself through a creative and easy to navigate web site.
RealNetworks just completed the acquisition of Sony Corp. (NYSE: SNE)'s NetServices, which will help RealNetworks' positioning in Europe a great deal. The deal is slightly dilutive to earnings, about $0.03, but strategically critical in its development. The transaction also creates a critical relationship with Vodaphone-Europe, which has over 200 million subscribers. RealNetworks will become a featured offering from Vodaphone to its customer base.
RealNetworks has the opportunity to become one of the world's largest companies in the digital content distribution market. The company has the growth capital with cash on the balance sheet over $520 million. The revenues for RNWK I estimate this year for $560 million growing to $650 million for 2008. The combined costs for sales and marketing and research and development are about 50-52% of revenues. As the company continues to scale its carrier and other critical media relationships, the leverage will lower these two vital costs to about 35% of revenues and provide a huge lift to the operating margin line.
RealNetworks could become a multi-billion dollar company with an even larger multi-billion dollar market capitalization. Its customer base is global and the new customer opportunities is evergreen. RNWK has a chance to be a top 25 stock for the NEXT 25 years.
Georges Yared is the CIO of Yared Investment Research where he explores more growth stock ideas.
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Reader Comments (Page 1 of 1)
6-05-2007 @ 4:42PM
Sheldon L said...
GY,
There is little chance of 'Real' even existing in five years, well enough 25. It either is bought out or fades away.
6-06-2007 @ 3:46PM
Michael Schneider said...
Real Networks was on our (still posted) list of Wild and Crazy stocks at http://www.Barrelomoney.com a few years ago-- things have changed quite a bit for their business. Insiders were buying back then but now they have been selling huge amounts of stock until very recently when they have started acquiring some. A risky company in a good but competitive area.