“Although it is losing money, Napster maintains a debt-free balance sheet with $132 million in cash, or about $3 per share, so the downside risk is limited. Bulls say Napster is an attractive takeover target for a search or portal company looking to get into the music business, or a device manufacturer looking to leverage Napster’s brand. Kit Spring, an analyst with Stifel, Nicolaus & Co., writes that if Napster experiences pricing pressure, ‘we believe it could decide to sell the company — and we believe there are several interested parties.’ Last year, Yahoo bought MusicMatch, another online music service, for $160 million — an estimated four times revenue. ‘We think Napster is worth more, given its stronger brand name and higher subscriber count,’ adds Mr. Spring, who estimates the company has a takeover value of $7 to $8,” Laurie Kawakami writes for The Wall Street Journal.
“Napster’s service is Windows-based and not compatible with Apple’s iPod player or the iTunes music store. ‘Until a device manufacturer breaks the iPod stranglehold on the market, Napster and other players on the Windows side of the market are chasing a niche opportunity,’ writes Steven Frankel, an analyst with Adams Harkness, who has a ‘reduce’ rating on Napster. He expects the iPod and iTunes combo to remain leaders in their respective categories in 2005, limiting the appeal of Napster’s service. He also notes that Apple could unveil a subscription service tied to its iPod player, further threatening Napster’s business,” Kawakami writes.
Full article here.
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