Earnings: Napster Revs Up 34 Percent In Q2; Loss Narrows; Ties With DoCoMo; M&A Still On Plate

It says a lot when a company’s own headline includes “Continues to Reduce Cash Burn” … Napster (NAPS) reported record revenue of $28.1 million for the first quarter of FY07, up 34 percent over the same quarter last year and 5 percent sequentially. The net loss also narrowed from last year, to $9.8 million, or 23 cents per share, compared with $19.6 million, or 46 cents per share, in FY1Q06.
Ad-supported Napster: The launch of the new service increased monthly uniques by more than 50 percent and 60 million page views per month by the end of the quarter. “Chris Gorog, Napster’s chairman and chief executive officer. “Our new free service should lead to lower subscriber acquisition costs and improved subscriber retention while building advertising revenue. We also continue to be very focused on improving bottom line performance and have substantially reduced our cash burn leaving us with a very healthy balance sheet.”
Subscriptions: The total subscriber base at the end of the June quarter was 512,000, including 4,000 university subscribers. (Even for a summer quarter, the number of student subs sounds low.) Paid subscriptions (excluding university) were up 26 percent year over year but Napster ended the June quarter 7 percent below the March quarter. Some changes have been made to Napster.com “to create a more optimal balance between our free and paid offerings, which should improve the conversion from free users to paid subscribers.”
Wireless: Napster Mobile will launch in the Southeast U.S. on SunCom Wireless next week, with over-the-air downloads to handsets and dual delivery to PCS. The company says the launch will be supported by “an extensive marketing campaign” highlighting Napster’s “largest in the world” mobile music catalog. The company hopes to announce “new top-tier” partners by year’s end.
TheStreet.com: “Gorog also addressed the looming launch of Microsoft’s Zune music player and service. He said that officials at the Redmond, Wash., software giant have told him they will not abandon the WMA format. ‘We do not have our heads in the sand’ in regards to a potential merger or acquisition,’ he added. The company has attracted a lot of interest, Gorog said, and assured investors that it weighs all potential options.”
From earnings call trancript: The company has announced a tie-up with NTT DocoMo in Japan: “Our alliance with DoCoMo is the result of their recent controlling investment in Napster’s Japanese joint venture partner, Tower Records Japan. Napster Japan is on track to launch this Fall starting with a PC-based service. You should note that DoCoMo has publicly announced that its handsets will support Windows Media audio and, therefore, will be Napster To Go compatible.
On the future of the company (read acquisition): “Senior management and the board are keenly aware of our strategic position and are vigilant and proactive in examining opportunities for our shareholders. We continue to receive a lot of interest in the company and would like to assure our investors that we will always carefully weigh any value creation alternatives against the opportunity and risk associated with continuing as a stand-alone company.”
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