RealNetworks CFO to resign

RealNetworks fell short of analysts' estimates in its second quarter Tuesday and separately, said its chief financial officer will resign.
Written by Larry Barrett, Contributor
RealNetworks fell short of analysts' estimates in its second quarter Tuesday and said its chief financial officer will resign.

The streaming media company disappointed Wall Street, earning $2.4 million, or 1 cent a share, on sales of US$47.9 million. First Call consensus pegged the streaming media software developer for a profit of 2 cents a share on sales of US$51.5 million.

Separately, RealNetworks announced that chief financial officer Paul Bialek has stepped down from his post for personal reasons but will remain with the company as a strategic adviser. Bialek will continue as the company's CFO until a replacement is found.

The US$47.9 million in sales marks a 24 percent decline from the year-ago quarter, when it earned US$10.6 million, or 6 cents a share, on sales of US$62.7 million.

RealNetworks shares closed up 27 cents to US$10.78 ahead of the earnings report before falling to US$10.54 in after-hours trading.

During a conference call with analysts, chief executive Rob Glaser said the company expects third-quarter sales to fall at least 5 percent from the second-quarter levels. He would not elaborate on sales or earnings targets for the rest of the fiscal year.

"The current economic environment is not certain, and we, like many other companies, have limited visibility," he said. "The right response to this environment is to keep charging ahead."

In the quarter, RealNetworks said, its premium Internet subscription service, GoldPass, surpassed the 300,000-subscriber threshold.

Systems sales in the quarter checked in at US$28 million, up from US$26.6 million in the first quarter. Consumer sales fell to US$15 million from US$18.6 million last quarter, while advertising sales slipped from US$5.5 million to US$4.6 million.

Last quarter, RealNetworks posted a profit of US$3.5 million, or 2 cents a share, on sales of US$50.4 million.

"They're trying to put a happy face on it, but these are tough times," said John Corcoran, an analyst at CIBC World Markets. "Their core business is under pressure from Microsoft, a well-funded competitor that's taking this space seriously. There are no magic rabbits to pull out the hat."

Corcoran predicted RealNetworks would earn 2 cents a share on sales of US$51.1 million this quarter.

"Microsoft's not playing dead," he said. "They are making headway with their latest versions and have been very aggressive in attacking the streaming media market."

In June, negotiations between Microsoft and AOL Time Warner regarding the inclusion of America Online's software on the software giant's XP operating system broke down, according to AOL executives, because Microsoft was "trying to control digital music on the Internet".

AOL bundles RealNetworks technology in the latest version of its software.

"From a growth standpoint, our consumer business in the third quarter should see modest growth," Glaser said.

Part of that growth is expected to come from its partnership with CBS to sell standalone access for US$19.95 to behind-the-scenes footage of the "Big Brother 2" program, which runs for 12 weeks.

The stock peaked at US$59.50 last July before tumbling to a 52-week low of US$5 a share in December.

Eleven of the 21 analysts tracking the stock maintain a "hold" recommendation.

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