Long-time angel investor Ron Conway, a special partner at Baselines Ventures, talked with Vator.tv founder Bambi Francisco at EconSM Thursday. Biggest regret? Passing over Salesforce.com. Most disappointing investment? Napster (NSDQ: NAPS). Biggest surprise? Digg. Then there are a few others you might have heard of—Facebook, Twitter, Google. Some more highlights from the conversation: —Twitter: Conway isn’t concerned that Twitter isn’t making money yet. “If you look at some of the greatest companies that have ever come out of Silicon Valley—Google (NSDQ: GOOG) and Facebook—(these are) examples of companies that focused on critical mass before they worried about monetization.” He also does not think that Twitter will sell itself. “I think Twitter could be the next Facebook or Google in size—market size and potential. Why not stay an independent company?” —Digg: Conway thinks Digg is an IPO candidate, once the recession is over. “I think Digg is growing at a good enough rate,” he said. —IPO market: The IPO market is a year away from recovery, Conway said. “It would be great if six months from now we have some good M&A activity which then (leads) into an IPO market.” One sector he thinks will be active in M&A: media companies, since the Internet sector is “their future.” —Investment strategy: “I look at teams first and ideas second,” Conway says. “When an entrepreneur starts a company, the idea they have morphs radically.” He talked about meeting Facebook founder Mark Zuckerberg in Palo Alto five years ago. “He told me exactly where Facebook was going to be today and why he thought he was going to be able to get 250 million users. He was very confident. That’s what makes a great entrepreneur. They can explain to you why (their) company is going to be great even though they are plowing completely new ground.”

Will online video kill the TV star? That’s the question panelists tried to answer during the Video Advertising panel at Digital Hollywood. “The TV and movie industries have a value chain—grips, actors, screenwriters, etc. What do we do in our industry so it doesn’t get decimated like it has with newspapers or music?” asked Steve Robinson, president of video ad firm Panache. Responses varied, of course, but the consensus was that there was no way the TV industry would survive in its current form:  The least optimistic was Kevin Yen, YouTube’s director of strategic partnerships: “Industries evolve, there’s consolidation and things change. We need to develop the economics that support this current model. We can’t take the perspective that there’s a big pot of gold at the end of the rainbow that rewards this [legacy] structure.” “We’re still applying TV metrics on the cost side to the Web, and that’s never going to work,” said Nada Stirratt, MTV’s EVP of digital advertising. “We need to actually look at the investments we’re making in web originals, look at the level of engagement they get, and value them accurately.” “It’s taken a long time, but we’re shifting at NBC so that the TV content we produce can automatically get repurposed for the web,” said Mark *Marvel*, senior director of video monetization for msnbc.com. “We’re trying to get more out of our existing talent and burn through less resources, I think you’ll see more of that happening across the board—with smaller Upfronts, more pilots being sent right to the web, etc.”  “We’re spending too much time trying to figure out what model is going to work, when it’s clear that we just need to be better at following consumers.” said Jason Forbes, group SVP of strategy, new products & marketing at Time Warner (NYSE: TWX) Cable Media Sales. “If we don’t, we’re just going to lose the revenue—like the music industry and Napster (NSDQ: NAPS), or like newspapers in their attempts to catch up online.” Photo Credit: Flickr

Will online video kill the TV star? That’s the question panelists tried to answer during the Video Advertising panel at Digital Hollywood. “The TV and movie industries have a value chain—grips, actors, screenwriters, etc. What do we do in our industry so it doesn’t get decimated like it has with newspapers or music?” asked Steve Robinson, president of video ad firm Panache. Responses varied, of course, but the consensus was that there was no way the TV industry would survive in its current form:  The least optimistic was Kevin Yen, YouTube’s director of strategic partnerships: “Industries evolve, there’s consolidation and things change. We need to develop the economics that support this current model. We can’t take the perspective that there’s a big pot of gold at the end of the rainbow that rewards this [legacy] structure.” “We’re still applying TV metrics on the cost side to the Web, and that’s never going to work,” said Nada Stirratt, MTV’s EVP of digital advertising. “We need to actually look at the investments we’re making in web originals, look at the level of engagement they get, and value them accurately.” “It’s taken a long time, but we’re shifting at NBC so that the TV content we produce can automatically get repurposed for the web,” said Mark *Marvel*, senior director of video monetization for msnbc.com. “We’re trying to get more out of our existing talent and burn through less resources, I think you’ll see more of that happening across the board—with smaller Upfronts, more pilots being sent right to the web, etc.”  “We’re spending too much time trying to figure out what model is going to work, when it’s clear that we just need to be better at following consumers.” said Jason Forbes, group SVP of strategy, new products & marketing at Time Warner (NYSE: TWX) Cable Media Sales. “If we don’t, we’re just going to lose the revenue—like the music industry and Napster (NSDQ: NAPS), or like newspapers in their attempts to catch up online.”

It’s not like iTunes is exactly looking over its shoulder—the Apple (NSDQ: AAPL) music store has a dominant position in the MP3 market. But Amazon.com (NSDQ: AMZN) is making a very respectable start in its bid for a piece of that market. Last year, 16 percent of digital-music buyers in the U.S. used Amazon’s MP3 store to purchase tracks, according to NPD, the market-research firm. That may not seem like much until you consider that none of iTunes’ competitors, including Napster (NSDQ: NAPS) and Wal-Mart (NYSE: WMT), has even surpassed 5 percent, NPD analyst Russ Crupnick said in an interview. (A commanding 87 percent of digital-music buyers used iTunes to download music). “Amazon is in the second tier—but at least there is a second tier,” he said. Amazon’s MP3 store debuted in full-force early last year, when it signed on all four major record labels to sell tracks. Crupnick said that Amazon’s MP3 store had benefited from the company’s existing strength in the music business. “A lot of people, regardless of whether they do anything digital, buy CDs from Amazon,” he said, and therefore decide to give the MP3 store a try. Amazon has not provided any public details about its store’s market position.

Ruckus Networks, the Herndon, VA-based college music and digital media service, has closed down, according to a notice on its site, picked up by TC. The company started in 2004 as a subsidized subscription service in about 82 colleges and universities in U.S., but didn’t do as well, and retooled a few month later in early 2007 as a free, ad-supported, Windows Media-DRM laden downloadable service for anyone with a .edu address. At that point, for an extra $15 a semester, students could also access 4,000 movies and TV shows. University faculty and alumni could also use the network, but had to pay a monthly fee. But as with college students everywhere, the alternatives were too lucrative (being free and unrestricted: the service wouldn’t play on iPods or even MSFT’s own Zunes), as other competing services from *Napster*, RealNetworks’ Rhapsody and Cdigix also found out along the way. In fact Cdigix closed down its college service early 2007. Ruckus was backed by Battery Ventures, Shelter Capita, Eastward Capital and Pinnacle Ventures, and raised a total of $22.7 million in two rounds, as of late 2006. Not clear: if it raised any more money after that. It even hired digital media vet Michael Bebel as CEO then. Bebel was previously CEO of Pressplay when it was acquired by Roxio, and became president and COO of the Napster (NSDQ: NAPS) division. That didn’t work either, apparently, and Ruckus was later sold to TotalMusic, the major labels-led digital music service that didn’t materialize away after a DoJ antitrust investigation. The Sony (NYSE: SNE) and UMG music JV wanted to use Ruckus’ technology as as a backend service, but that never happened as well.

—HTC provides Q2 revenue forecast: HTC’s CFO Hui-Ming Cheng said in an investors conference last week that it expects Q2 revenues between $1.14 and $1.17 billion (NT$37.5 and 38.5 billion), representing at least a 19 percent increase over Q1 and at least an 8 percent increase compared to the same period a year earlier, reports digitimes. Margins may increase slightly, but HTC is expecting the average selling price to drop around 5 percent. In Q1, the average price was $364, which was down 6.2 percent compared to a year ago. —RIM (NSDQ: RIMM) makes push API available: Research In Motion announced today that it is making tools available to developers, so that they can integrate push technology into their applications. Now, developers will be able to push content updates to their apps, much like how emails appear without a user having to go out and look for new messages. RIM said companies, like The Hockey News are working with the APIs to send fans the latest scores. Apple (NSDQ: AAPL) is rolling out a similar feature this summer with its upcoming software update. (Release.) —AT&T (NYSE: T) lists top 10 apps and games: AT&T released a list of the top-performing applications based on sales from the first three months of the year. The 10 top apps were: AT&T Navigator; AT&T Mobile TV; Napster (NSDQ: NAPS) Mobile; XM Radio Mobile; MobiTV; WikiMobile; Shazam (MusicID); Make-UR-Tones; My-Cast Weather; and MobiVJ (music videos). The top 10 games were: Tetris; Bejeweled; Guitar Hero World Tour Mobile; PAC-MAN by Namco; Ms. PAC-MAN by Namco; Jewel Quest II; Diner Dash; The Oregon Trail; Midnight Pool 2; and Platinum Sudoku. Release. —Microsoft (NSDQ: MSFT) changes PR firms for Windows Mobile: With a handful of major news events coming up for Microsoft, such as the launch of its Windows Mobile 6.5 operating system, and its mobile application storefront, it has a lot riding on its public perceptions. To that end, AdAge.com reported today that Microsoft has awarded its mobile business to longtime agency partner Waggener Edstrom, which will partner on the account with Seattle-based marketing firm Wexley School for Girls. Starting July 1, the two agencies replace Weber Shandwick, which has been managing the account for the past five years. A Microsoft spokesperson told AdAge that the review was routine.

—HTC provides Q2 revenue forecast: HTC’s CFO Hui-Ming Cheng said in an investors conference last week that it expects Q2 revenues between $1.14 and $1.17 billion (NT$37.5 and 38.5 billion), representing at least a 19 percent increase over Q1 and at least an 8 percent increase compared to the same period a year earlier, reports digitimes. Margins may increase slightly, but HTC is expecting the average selling price to drop around 5 percent. In Q1, the average price was $364, which was down 6.2 percent compared to a year ago. —RIM (NSDQ: RIMM) makes push API available: Research In Motion announced today that it is making tools available to developers, so that they can integrate push technology into their applications. Now, developers will be able to push content updates to their apps, much like how emails appear without a user having to go out and look for new messages. RIM said companies, like The Hockey News are working with the APIs to send fans the latest scores. Apple (NSDQ: AAPL) is rolling out a similar feature this summer with its upcoming software update. (Release.) —AT&T (NYSE: T) lists top 10 apps and games: AT&T released a list of the top-performing applications based on sales from the first three months of the year. The 10 top apps were: AT&T Navigator; AT&T Mobile TV; Napster (NSDQ: NAPS) Mobile; XM Radio Mobile; MobiTV; WikiMobile; Shazam (MusicID); Make-UR-Tones; My-Cast Weather; and MobiVJ (music videos). The top 10 games were: Tetris; Bejeweled; Guitar Hero World Tour Mobile; PAC-MAN by Namco; Ms. PAC-MAN by Namco; Jewel Quest II; Diner Dash; The Oregon Trail; Midnight Pool 2; and Platinum Sudoku. Release. —Microsoft (NSDQ: MSFT) changes PR firms for Windows Mobile: With a handful of major news events coming up for Microsoft, such as the launch of its Windows Mobile 6.5 operating system, and its mobile application storefront, it has a lot riding on its public perceptions. To that end, AdAge.com reported today that Microsoft has awarded its mobile business to longtime agency partner Waggener Edstrom, which will partner on the account with Seattle-based marketing firm Wexley School for Girls. Starting July 1, the two agencies replace Weber Shandwick, which has been managing the account for the past five years. A Microsoft spokesperson told AdAge that the review was routine.  

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After being out sick for the greater part of last week, I was browsing the financial news and blogs to see everything I had missed during my tryst with the tissue box, when I came across an article entitled “NoPod” with a picture of a trampled iPod lying on the ground. Since I have a personal affinity to Apple (Nasdaq: AAPL) – not their products and not even really the company, just the Apple-ites who are a little too ummmm… passionate about their tastes in technology – you can bet your bottom dollar that I pounced on the story right away. But that isn’t the only thing you can bet on… From Records To iPods The article’s premise was simple: due to the ever-changing nature of technology demands helped along by a strong dose of recession, the all-popular iPod is on its way to becoming less than supreme. And really, it’s got a[More...]

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Best Buy (BBY), one of the largest retailers of CDs, and Napster (NAPS), once the best-known name in digital music, both offer digital...

Napster, Inc (NASDAQ:NAPS) hit $1.40 a share today and everyday they come closer to falling under $1. Their all new MP3 store couldn't distract investors from their Q4 report and a flat 2008 guidance.  So, do you buy the 16 oz. Coke or a share of Napster?

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That somebody happens to be Bear Sterns analyst Kunal Madhukar.  Thanks to Madhukar, his upgrade last week sent shares of Napster Inc. (NASDAQ:NAPS) up 15%.  With today's pullback, shares of NAPS are only up 6.5% since his upgrade to "Outperform" from "Underperform."  Most of you know the Masters have talked up Napster in the past, but now Wall Street is onboard.

On Feb 11th, Bear Stearns analyst Kunal Madhukar wrote that Napster's disinterest, coupled with a trading imbalance that resulted from the company leaving the S&P 600 Small Cap Index in February, "has resulted in a compelling buying opportunity for investors who are willing to hold the shares for 12 (to) 18 months."

In the past year, the stock has traded between $1.60 and $4.46.

Madhukar, who has a $2.50 price target on Napster shares, noted Napster finished its third quarter in December with $69 million in cash and equivalents. Based on its 43.6 million outstanding shares - an additional 2.4 million are marked as restricted share awards for employees and will likely vest in the next few years - the company's market value is $71 million, and enterprise value is about $2 million, Madhukar said.

"At current valuations, in our view, investors are effectively buying the cash at face value, and getting the company for free," he said.

Madhukar wrote that the market is "more than discounting" risks to Napster's business, but that the company isn't getting credit for its brand, technology, portal, partnerships or for cash and tax-related net operating losses.

Fellow Masters, this is a long-term hold, but any other good news and you could bank 5 to 10% in a single day.  Above all, NAPS is a stock to add to your watch list.

Is Lars from Metallica’s dream of Napster going out of business finally coming true?  Or will the ever-present underdog that is Napster (NAPS) come back swinging like Rocky Balboa vs Apollo Creed?

Napster shares just broke a new 52 week low today, down -6.44% to $1.89 a share.

Has anyone checked the company’s steadily improving balance sheet lately? Revenue and Net income are steadily increasing, while cash levels have improved significantly. Does this look like a business that’s going to close its doors anytime soon?

Financials (In millions of USD)

Income Statement	Quarterly (Sep '07)	Annual (2007)	Annual (2006)
Total Revenue	31.62	111.08	94.69
Gross Profit	9.45	32.44	25.48
Operating Income	-5.35	-37.41	-61.54
Net Income	-5.08	-36.83	-54.95
Balance Sheet
Total Current Assets	73.84	74.45	111.39
Total Assets	118.06	121.73	155.54
Total Current Liabilities	36.48	33.41	36.99
Total Liabilities	40.57	37.02	39.77
Total Equity	77.50	84.71	115.77
Cash Flow
Net Income/Starting Line	-5.08	-36.83	-54.95
Cash from Operating	1.11	-28.63	-44.53
Cash from Investing	11.57	11.48	-28.37
Cash from Financing	0.05	0.00	-14.91
Net Change in Cash	13.26	-16.74	-88.60

 

Napster is looking severely undervalued at these levels. The stock price decline after releasing their best earnings ever just doesn’t add up. On top of that, their partnership with AT&T is still in an early stage – they just released their first mobile phone that supports Napster Mobile. Investors shouldn’t count the partnership out; it could lead to a major source of revenue for the company in the near future.

The Stockmasters think Napster is a potential Value Play and although it is a high risk trade, the potential gain, especially if they get acquired, is well worth the risk.

---

Article written by Eric Cheshier

Co-Founder of theStockMasters.com

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