With the plunge in the equities markets, there are certainly some compelling opportunities. Just look at Napster Inc. (NASDAQ: NAPS), an online music operator. The company has $69.8 million in the bank and a market cap of $66.4 million. Yes, Wall Street is valuing the business at below zero.
Well, hedge funds are taking notice (this is a according to Bloomberg.com). For example, Eminence Capital LLC has increased its equity stake to a cool 9%. This is usually the first step in forcing a company to sell out.
One possibility is for Napster to go private. However, this will probably not carry much of a premium.
Instead, I'm sure the hedgies want Napster to get an offer from a strategic player, such as RealNetworks (NASDAQ: RNWK). Oh, and another possibility is JDS Capital Management Inc., which owns eMusic.com. Keep in mind that the firm purchased one million shares of Napster in Q1.
Actually, Napster controls about a majority of the U.S. online music subscription market. The problem: it's a niche market.
So, with hedge funds swarming, it's going to be tough for Napster to ignore things. In fact, in Friday's trading, the company's shares spiked 27% to $1.39 as the rumors buzzed.
Rhapsody, a music download service owned by Real Networks (NASDAQ: RNWK) and Viacom (NYSE: VIA), will make yet another run at Apple Inc.'s (NASDAQ: AAPL) iTunes. According toReuters, "Digital music seller Rhapsody is launching a $50 million marketing assault on Apple's iTunes, offering songs online and via partners including Yahoo Inc. (NASDAQ: YHOO) and Verizon Wireless."
Why the venture thinks it will have real success is anyone's guess. Downloading to Verizon Wireless phones is not exactly the kind of novelty that is likely to draw customers. The service will have one important new feature, though. Rhapsody subscribers have not been able to play their music on iTunes. Under the new push, that will change.
Memo to Rhapsody: The horse has already left the barn. Keeping the service off of the iPod for so long has helped iTunes move into a unassailable position.
Real Networks, which dominated the multimedia market with its Real Player from the late 1990s until about five years ago, was slaughtered by Apple when it offered a device coupled to a music store with the launch of the iPod.
There is no catching up now. The race is over.
Douglas A. McIntyre is an editor at 247wallst.com.
RealNetworks (NASDAQ: RNWK) delivers digital information and entertainment. The firm's RealPlayer product downloads and streams audio, video, and other multimedia content. Its RealOne software and subscription service provides access to news, sports and entertainment content. Its Rhapsody digital music service delivers more than 1 billion songs per year. Its RealArcade is one of the largest casual games destinations on the Web. The company also assists businesses with tools for creating, delivering, and licensing digital content. Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and Yahoo (NASDAQ: YHOO) are competitors.
The firm pleased investors last week, when it reported Q1 EPS of two cents and revenues of $147.6 million. Analysts had been looking for a loss of three cents and $141.6 million. Management also guided Q2/FY08 estimates above consensus views, announced a $50 million share repurchase program and said it intended to spin off its global casual games business. Kaufman Brothers reiterated its "buy" rating on the shares and boosted its price target to $9.
There are those who counterfeit money and those who make near-perfect knockoffs of 21 different Microsoft programs. Well, Microsoft Corp. (NADSAQ: MSFT) pushed an investigation through 22 countries and local law enforcement officials seized software, equipment and records, and made arrests. Microsoft estimates the retail value of the software the operation generated at $900 million.
The buzz over the $44.6 billion unsolicited bid Microsoft made for Yahoo! Inc. (NASDAQ: YHOO) is far from over with new items as well as speculations coming daily. The Financial Times reports that Softbank yesterday said it had no intention of selling its 41% stake in Yahoo Japan. Meanwhile, Trip Chowdhry of Global Equities Research speculated Thursday that Microsoft made the stunning proposal as a way to block a possible alliance between Yahoo and Amazon.com, Inc. (NASDAQ: AMZN).
The Wall Street Journal reports that federal prosecutors, looking into the mortgage businesses, have asked the Securities and Exchange Commission for information on Merrill Lynch & Co. (NYSE: MER).
Yahoo, Inc. (NASDAQ: YHOO), which is going to have an interesting week after last week's unsolicited bid by Microsoft Corp. (NASDAQ: MSFT), is outsourcing its online music business. Instead of operating its own music download service (which apparently has not been very profitable), the company will give that chore to Rhapsody America, operated by RealNetworks, Inc. (NASDAQ: RNWK) and Viacom, Inc. (NYSE: VIA).
Yahoo! will migrate customers of its in-house music subscription service to Rhapsody in the coming months. With RealNetworks and potential Yahoo! owner Microsoft being bitter enemies, it will be interesting to see if this partnership lasts should Microsoft succeed in taking ownership of Yahoo for $44.6 billion.
Does Yahoo! have the chops to do much outside the email, search and display advertising arenas? It has not seen growing profit despite being the world's largest internet property (until recently), but shedding itself of assets like its online music business is in line with the company's recent turns as it concentrates on core businesses and trying to be everything to everyone -- and making money from just a few pieces of its business.
MOST NOTEWORTHY: Vail Resorts, Peabody Energy and EnteroMedics were today's noteworthy initiations:
Wachovia initiated Vail Resorts (NYSE: MTN) with an Outperform rating and said the company's real estate platform is not being valued at current valuation.
Calyon believes Peabody Energy (NYSE: BTU) is well-positioned to take advantage of tightening global coal fundamentals and rising coal prices. The firm started shares with an Add rating and $70 target.
EnteroMedics (NASDAQ: ETRM) was assumed with a Neutral rating at Cowen, as they believe the company lacks near-term catalysts ahead of EMPOWER results in 2H09.
OTHER INITIATIONS:
Lehman initiated Akzo Nobel (OTC: AKZOY) with an Overweight rating.
Bear Stearns started Napster (NASDAQ: NAPS) with an Underperform rating and RealNetworks (NASDAQ: RNWK) with an Outperform rating.
Trying to compete with Apple Inc.'s (NASDAQ: AAPL) iTunes store, Viacom Inc.'s (NYSE: VIA) MTV unit may be setting up a partnership with online music operator RealNetworks (NASDAQ: RNWK) to create an online music store. This is the first online store I've heard of that I think might actually represent a threat to iTunes as MTV has such a name among young (and less young) listeners.
Following its purchase of Cricinfo.com, the world's largest specialist cricket web site, Walt Disney Co.'s (NYSE: DIS) sports network ESPN had bought Scrum.com, a leading rugby news web site.
Wal-Mart Stores Inc. (NYSE: WMT) announced it is now selling DRM-free digital music downloads on its web site. Usually a copy-protection software is added to the songs to limit where consumers can play the songs, but Wal-Mart now has thousands of albums and songs from major record labels in its catalog.
Staples Inc. (NASDAQ: SPLS) second-quarter profit rose 11% to $178.8 million, or 25 cents per share. Sales rose 11% to $4.29 billion. Analysts had expected net income of 25 cents per share on revenue of $4.3 billion. Staples also said it expects to post earnings growth of 15% for the full year, at the lower end of its guidance range. SPLS shares are down 1.3% in premarket trading (8:15 a.m.).
BJ's Wholesale Club Inc. (NYSE: BJ) second-quarter profit rose 37% to $36.3 million, or 55 cents per share. Excluding charges, the company would have earned 46 cents per share in the latest period, compared with 41 cents in the second quarter of 2006. Sales for the second quarter increased 8% to $2.25 billion, while total revenue grew to $2.29 billion from $2.12 billion. Analysts had expected 41 cents per share on revenue of $2.29 billion. BJ shares are up 3.8% in premarket trading (8:07 a.m.).
Viacom's (NYSE: VIA) MTV unit is setting up a partnership with online music operator RealNetworks (NASDAQ: RNWK) to create an online music store to try to compete with the Apple (NASDAQ: AAPL) iTunes store. MTV's large marketing budget and substantial reach on cable TV will be the key to the effort.
Large wireless operators Verizon Wireless and Vodafone (NYSE: VOD), the largest carrier in Europe, will distribute the service. Apple has a music distribution deal with AT&T (NYSE: T) based on its exclusive sales arrangement for the iPhone.
While most competitors to the Apple music store and player powerhouse have done little, the new venture has a chance. Unlike projects like the Microsoft (NASDAQ: MSFT) Zune, Verizon and Vodafone has close to 150 million wireless customers between them. The would rival the number of iPods in the market. MTV's global brand as the top music video channel should also help.
However, these deals almost always fall apart because there are too many parties with different agendas. RealNetworks would like to boost its flagging Rhapsody online music store. MTV would like to find some success outside its cable distribution and the two wireless carriers would like to have a product to compete with the iPhone/iTunes juggernaut.
But, that is a lot of moving pieces with competing interests. Apple can sleep soundly tonight.
MOST NOTEWORTHY: Apple (AAPL), Ariba (ARBA), EMC Corp (EMC), Anadarko Petroleum (APC) and RealNetworks (RNWK) were today's noteworthy upgrades:
Apple Inc (NASDAQ: AAPL) was upgraded to Buy from Hold with a $160 target at Citigroup following yesterday's pullback; they believe Mac should remain strong through year-end, Q3 consensus estimates look conservative and believe production cuts should not be a surprise.
Roth Capital upgraded shares of Ariba (NASDAQ: ARBA) to Buy from Hold as they believe shares work higher over then next few quarters; they expect seasonally strong September and December quarters and believe that revenue bottomed last year.
Goldman added EMC Corp (NYSE: EMC) to its Conviction Buy List, citing Q2 results and multiple product cycles.
Anadarko Petroleum (NYSE: APC) was raised to Market Perform from Underperform at BMO Capital following better than expected Q2 results and guidance.
RealNetworks (NASDAQ: RNWK) was upgraded to Hold from Sell at Soleil on valuation after reporting solid Q2 earnings...
OTHER DOWNGRADES:
PetSmart (NASDAQ: PETM) was upgraded to Outperform from Neutral at Credit Suisse.
BWS Financial raised Xoma (NASDAQ: XOMA) to Buy from Hold.
Google (NASDAQ: GOOG) is trying to convince [subscription required] the Justice Department that it should seek to extend its anti-trust oversight of Microsoft (NASDAQ: MSFT). A U.S. District Court agreed in 2002 to keep track of Microsoft's anti-competitive behavior.
Of course that was back in the day when Microsoft was using its Windows operating system to crush companies with competing browsers, like Netscape, and competing media platforms, like RealNetworks (NASDAQ: RNWK).
Google claims that because Microsoft's Vista OS has been found to make it difficult for PCs to run the Google desktop search function, that the government should continue to keep an eye on Redmond. The government's current watchdog role ends in November.
Google is telling the government that it cannot take care of itself. If Microsoft is the originator of future bad behavior, it cannot come back to the courts with a new case. Microsoft is too big and too bad to be controlled.
It is an argument that is too clever by half. Google is not Netscape and it is not RealNetworks. It competes with Microsoft on an even footing. It does not need the help of the federal government to make sure that Vista does it no harm. If its problems persist beyond November, it can always come back with a new complaint. But Microsoft probably gets the message.
Google (NASDAQ: GOOG) has complained to the Justice Department that Microsoft's (NASDAQ: MSFT) new Vista operating system made it difficult for companies to run desktop search functions on the system from the world's largest software company.
Rather than put up a fight over the antitrust implications, Microsoft has made changes to Vista to avoid a battle with both federal and state governments. The Justice Department and seventeen states have agreed to Microsoft's solution to the problem.
Perhaps Microsoft is getting wise in its old age. Or, perhaps it is getting timid. The company has been hit with antitrust actions in Europe and the U.S. over matters that range from using its operating system to give its internet browser advantages over Netscape to harming RealNetworks (NASDAQ: RNWK) by pushing the Window Media Player with its operating system. Microsoft ended up paying billions of dollars in fines and settlements.
The news certainly represents a change for heart. Microsoft has gotten out in front of the problem rather than waiting to fight an accusation brought by a government agency.
The New York Timesreported over the weekend that the top antitrust official at the Justice Department was helping Microsoft (NASDAQ: MSFT), urging investigators to reject complaints of antitrust practices at both the federal and state level.
The world's largest software company may have needed the help. The Wall Street Journalwrites [subscription required] that Google (NASDAQ: GOOG) prepared a detailed report that was given to the government in April. The report detailed how Microsoft's new operating system, Windows Vista, puts rivals at a disadvantage. At the core of the complaint is the allegation the Microsoft's desktop search, which helps users look for data on their own PCs, makes it difficult for customers to download rival products.
If the government decides to push the issue, Microsoft could be in for another long round of antitrust prosecution. It has already paid out penalties to Time Warner (NYSE: TWX) for hurting the Netscape browser franchise and to RealNetworks (NASDAQ: RNWK) for unfair competitive practice in the media players space. The European Union is still fighting with Microsoft about how it has abused its monopoly power in the region.
Google is shrewd. Anything that ties up Microsoft in its flagship OS business takes resources away from the company's other ventures, such as the search market. It also allows Google a better footing as it goes to market with word processing and spread sheet products of its own.
And Google does not even have to pay the legal fees.
With the plunge in the equities markets, there are certainly some compelling opportunities. Just look at Napster Inc. (NASDAQ: NAPS), an online music operator. The company has $69.8 million in the bank and a market cap of $66.4 million. Yes, Wall Street is valuing the business at below zero.
There are those who counterfeit money and those who make near-perfect knockoffs of 21 different Microsoft programs. Well, Microsoft Corp. (NADSAQ: 
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Before the bell: 
The week in preview: Chicken soup (or a doughnut) for the recession-weary soul?
Comfort Zone Investing: Oil's down, which is a start, but not good enough
Stocks have their worst week in six years
