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RealNetworks meets estimates, cuts expectations

The provider of media-streaming software hits analysts' reduced profit estimates in its fourth quarter but slashes sales and earnings estimates for the next quarter and year.

    RealNetworks hit analysts' reduced profit estimates in its fourth quarter Tuesday but slashed its sales and earnings estimates for the first quarter and fiscal 2001.

    The provider of media-streaming software posted a profit of $3.9 million, or 2 cents a share, on sales of $58.2 million. First Call consensus estimates pegged RealNetworks for a profit of 2 cents a share on sales of $60.7 million following its profit warning earlier this quarter.

    Analysts originally forecast a profit of 4 cents a share in the quarter.

    RealNetworks shares closed off 38 cents at $10.75 ahead of the earnings report.

    The $58.2 million in sales represents a 34 percent improvement from the year-ago quarter, when the company pocketed $6.6 million, or 4 cents a share, on sales of $43.5 million. For the fiscal year, RealNetworks earned $30.9 million, or 18 cents a share, on sales of $241.5 million compared with a profit of $10.5 million, or 6 cents a share, on sales of $131.2 million in fiscal 1999.

    During a conference call Tuesday, Chief Financial Officer Paul Bialek told analysts to expect total sales between $240 million and $260 million in fiscal 2001, down from a consensus estimate of $297 million.

    "Longer sales cycles for our systems software and weak advertising demand will have an impact on our financial results in the first quarter and in fiscal 2001," Bialek said. "In light of the current economic environment, we're taking a conservative stance as far as our outlook and our operating expenses."

    He said RealNetworks will likely earn between 9 cents and 11 cents a share in the fiscal year, below the current estimate of 15 cents a share. In the first quarter, it now expects sales in the neighborhood of $50 million to $52 million and earnings around 2 cents a share. Analysts were projecting sales of $60 million and a profit of 3 cents a share.

    "This is not a case of us losing design wins," Bialek said. "We expect to post sequential revenue growth of between 12 percent and 15 percent through fiscal 2001."

    Gross profit margins in the quarter came in at 82 percent. The company exited the quarter with more than $380 million in cash and short-term investments.

    "Bumps in the road not withstanding, we're very happy about the accomplishments we've made in 2000," Chief Executive Rob Glaser said during the conference call.

    Last quarter, RealNetworks met analysts' estimates when it posted a profit of $7.6 million, or 4 cents a share, on sales of $67.1 million.

    RealNetworks shares dropped last week after Merrill Lynch analyst Henry Blodget downgraded the stock on valuation concerns as well as on recent data suggesting the company was losing market share to Microsoft. Blodget cut RealNetworks from "accumulate" to "hold," citing the growing popularity of Microsoft's Windows Media Player and RealNetworks' pricey valuation, around 86 times its projected earnings for 2001.

    However, Credit Suisse First Boston analyst Heath Terry didn't buy Blodget's Netscape analogy, saying that Microsoft's moves in the streaming media sector over the past three years have had little affect.

    According to Jupiter Media Metrix data, RealNetworks' share of media-streaming software usage fell 10 percent in the second half of 2000, while Microsoft's Windows Media Player share increased 30 percent.

    RealNetworks shares have been under pressure in the past four months, falling from around $30 a share in October to a 52-week low of $5.19 in December. The stock traded as high as $96 a share in February.