Napster Fourth-Quarter Loss Widens
Wednesday May 11, 5:34 pm ET
Napster Fourth-Quarter Loss Widens on Lower Prices, but Revenue More Than Triples
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LOS ANGELES (AP) -- Napster Inc. on Wednesday reported its fourth-quarter loss widened from the year-ago period as the online service music used promotions and aggressive marketing to lure new customers.
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The loss for the quarter was $24.3 million, or 60 cents per share, compared with a loss of $6.6 million, or 20 cents, last year. Revenue rose to $17.1 million from $6.1 million during last year's fourth quarter and was within the range given by the company in early April.
On average, analysts surveyed by Thomson Financial expected a loss of 63 cents per share on revenue of $16.2 million.
Competition in an increasingly more crowded online music field forced Napster to offer attractive deals to boost revenue, but also led to higher expenses during the quarter. The company said sales and marketing during the fourth-quarter rose to $16.3 million from $3.4 million during the year-ago.
The earnings come on the same day Yahoo Inc. made its entrance into the online music subscriptions business -- a challenge Napster said it can withstand. Napster, which ended the quarter with 412,000 subscribers, implied that Yahoo's vastly discounted subscription prices wouldn't hold.
"We believe that the promotion of new subscription services by competitors will expand the market," said Chairman and Chief Executive Chris Gorog in a statement. "Based on our discussions with record labels, it is clear that very aggressive introductory pricing for portable subscriptions from competitors will be at negative gross margins and we believe that consumers should expect rapid price increases."
Earlier Wednesday, analysts voiced concern that Yahoo's new service might force Napster and RealNetworks Inc. to either lower their prices or risk losing subscribers.
"We expect pricing to become more competitive for all players, which would significantly impact revenues and profits," investment bank Piper Jaffray wrote in a research note. Piper added that Napster was in a better position to fend off Yahoo due to a strong brand name and tie-ups with makers of portable music playing devices.
Napster has been attempting to lure customers with a host of new products -- such as subscription business Napster To Go, which charges $14.95 per month. The company has also offered promotions such as a 14-day free trial.
The subscription services enable customers to rent an unlimited number of songs without ever owning the music outright. That's a significant distinction from Apple Computer Inc.'s iTunes store, which sells songs for 99 cents apiece and so far has frowned upon the rental approach.
Looking forward, Napster said it expects revenue to increase to $19 million to $21 million during the first quarter -- reflecting "more modest growth" on a sequential basis due to the start of the typically slower summer season. The company said Internet usage dips during the summer when most university subscriber accounts are canceled.
Analysts expect a loss of 53 cents per share on revenue of $17.09 million during the quarter.
During the full fiscal year -- during which Napster changed its name from Roxio -- the company posted a net loss of $29.5 million, or 82 cents per share, compared to a loss of $4.4 million, or $1.62 per share, during the previous period. The company had a loss from continuing operations of $1.43 per share for the year. Revenue increased to $46.7 million from $12 million. Analysts had projected a loss of $1.92 per share on revenue of $45.5 million.
Shares fell 8 cents to $4.57 in electronic trading after they closed down $1.70, or 26.8 percent, to $4.65 on the Nasdaq.
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