RealNetworks, Inc.-Buy Recommendation

Real Networks, Inc. (NASDAQ–RNWK)
Valuation-$9.88
Closing price May 22, 2009-$2.55

With the recent market rebound, we thought it might be time to look around for some real value stocks that haven’t participated. We think RNWK is one.

RNWK is sitting on $2.91 per share in cash (114% of current market cap) and is only about 30% off its 52 week low.

Its’ operating performance has not been stellar (but whose has?). Last quarter sales were off 5% to $141 million and they lost $12 million ($.10 per share). Adjusted EBITDA for the quarter was slightly positive.

This is complex company with almost $400 million in cash and no debt, 60% margins and 114% of its market cap in cash, we see little downside risk. Maybe some big company will come along and buy it out at double, or even triple its current price.

Among its shareholders with more that 5% holdings are Royce, Dimension and the CEO owns almost 40% of the shares.

RNWK trades over 700,000 shares a day, so liquidity is not an issue here.

There are about 134 million fully diluted shares outstanding.

About Real Networks
RealNetworks, Inc. delivers digital entertainment services to consumers via PC, portable music player, home entertainment system and mobile phone. Real created the streaming media category in 1995 and has continued to lead the market with pioneering products and services, including: RealPlayer®, the first mainstream media player to enable one-click downloading and recording of Internet video; the award-winning Rhapsody® digital music service, which delivers more than 1 billion songs per year; RealArcade®, one of the largest casual games destinations on the Web; and a variety of mobile entertainment services, such as ringback tones, offered to consumers through leading wireless carriers around the world.

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