Monday, August 10, 1998
Audio Book Club
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Phone: 561-241-1426
Website: www.audiobookclub.com
Price (8/7/98): $9 7/16
HOW DID IT DOUBLE?
If Audio Book Club had its way, you would be listening to this Daily Double -- and it would be a familiar saga. As we have seen time and again recently, just the notion of selling on the Internet has made for dramatic stock moves in upstart merchants. I'll spare you the colorful inflection this time. The soaring share price here speaks volumes, and not bound ones but rewound ones.
For the first "members only" audiobook company, this year has had more highs and lows than a shoreline epic. As the company's membership closed in on 300,000 literary slackers, a newly developed website began to attract subscribers. In April and again in July, the stock had huge surges as Internet vendors and search engines rose in tandem. For Audio Book Club specifically, the July announcement of new partnership deals and adding 4500 new members in the past month through its interactive website drew speculative attention to the stock. For three consecutive days the stock had brief trading halts to adjust for the demand imbalance. The first two suspensions came from excess buyers, the last from a seller surplus.
Yet despite a subsequent bout of profit taking after both run-ups, the shares have still tripled over the last month alone -- and the shareholders lived happily ever after.
BUSINESS DESCRIPTION
Florida-based Audio Book Club is a direct marketer of audiobooks through print ads, mailings, and its namesake website. Like the old Columbia House music clubs that used to tempt you with a zillion albums for a penny, then hit you with monthly mailings until you bought enough to fulfill your agreement, Audio Book Club has an introductory rate of four cassette tape or CD books for a penny.
Seventeen times a year the company mails members an updated catalog. Do nothing and the "featured audiobook" will be sent your way. After completing four purchases at regular club prices, the members are allowed to cancel if they wish to do so.
The company also has a sister site at BooksAloud.com.
FINANCIAL FACTS
Income Statement
12-month sales: $11.3 million
12-month income: ($3.6 million)
12-month EPS: ($1.04)
Profit Margin: N/A
Market Cap: $58.5 million
Balance Sheet
Cash: $6.7 million
Current Assets: $11.1 million
Current Liabilities: $2.6 million
Long-term Debt: None
Ratios
Price-to-earnings: N/A
Price-to-sales: 5.2
HOW COULD YOU HAVE FOUND THIS DOUBLE?
Oops, did I really dub audiobooks the breakfast of literary slackers? Of course audiobooks have many practical applications. For everything from smog-ridden commutes to long-distance treks, from working out with a Walkman to relaxing with the home stereo -- we are listening to books! Even our very own Motley Fool Investment Guide is an audiobook. With 500 new publications coming out every month to add to the existing library of almost 70,000 spoken books, one would think that the niche might be attractive even before the Internet angle.
But we can't forget the Internet angle. Beyond coattails, e-tail stocks have had a tendency to rise as they ink partnership deals with popular content sites. Earlier this month Audio Book Club had three to announce. Granted, [email protected], hitthebeach.com, and freeride.com are not browser magnets like Yahoo! or Geocities. But in Audio Book's case, starting July with a market cap of $30 million wouldn't take much to move the stock higher.
Having watched the stock soar and crash just months before, a speculator might have hopped on board when the price had stabilized in hope of a repeat Internet frenzy performance. A speculator might have timed it right. A speculator might have timed it wrong. A Fool wouldn't have timed it at all -- but would be the recipient of a bonus after being lured by the surging popularity of audiobooks and a debt-free pioneer in the growing niche.
WHERE TO FROM HERE?
Is this a great Internet play? Not really, but the company is quick to pump out press releases stressing its commitment to the online forum -- with the recent capital expenditures to show for it. So let's analyze the growth.
Audio Book Club now claims 340,000 members. How does 4,500 monthly new website members add up? Annualized it's just 16% membership growth. That certainly isn't the triple-digit high-octane revenue growth the more successful online merchants are showing. 4500 new members? 4500 shiny pennies of initial revenues? This is still a company that is signing up more than half of its new members offline, not online.
That will change. The company has initiated an Associates program similar to the larger media e-tailers that will eventually have Audio Book Club links plastered all over entrepreneurial Web pages. Of course, 7.5% of the gross sales will have to be paid to the originating website, so there will be added costs -- but far less than traditional mailing and advertising costs -- and with a 100% capture rate.
But, as music retailers CDnow <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> and N2K <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %> have recently found, there is a stampeding mammoth in the Amazon. Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> sells audiobooks, just about all of them, and without the club obligations. Then again, maybe it is the ball and chain of club membership that will distinguish Audio Book Club. Amazon isn't going to offer four of anything for a penny.
If after some due diligence you find yourself a potential buyer, look before you leap. As a thinly traded stock, the company has been susceptible to wide price swings and this is certainly one you don't want to chase. History often rewinds itself -- like an audiobook.
-Rick Aristotle Munarriz
([email protected])