InfoSpace Down; Carrier Plans Direct Deals With Record Co
NEW YORK -(Dow Jones)- Shares of InfoSpace fell as much as 23% after the company said one of its carrier partners plans to develop licensing arrangements with major record labels.
Wall Street analysts reasoned that the customer is likely Cingular Wireless, InfoSpace's most significant mobile customer, which would hurt InfoSpace's revenue and operating results. Cingular is jointly owned by AT&T and BellSouth.
InfoSpace, a Bellevue, Wash., provider and publisher of mobile content, said its mobile revenue was $89.6 million in the first six months of the year, of which label tone sales represented about $55 million. InfoSpace's total revenue for the same period was $186.1 million.
Several analysts estimated that ringtones for Cingular accounted for close to 30% of InfoSpace's total revenue in 2005.
"We believe the majority of the Cingular revenue is at risk," Pacific Growth Equities analyst J. Derrick Wood wrote in a research note.
Wood also warned that other carriers will likely eventually follow the same path and expects InfoSpace's real-tone business will ultimately be eliminated.
Representatives of InfoSpace weren't immediately available for comment.
InfoSpace's other customers, including Verizon Communications, T-Mobile International and Sprint Nextel, all have contracts with InfoSpace that come up annually, Wood said. However, he doesn't expect the move to happen immediately at the beginning of 2007.
Infospace will continue to receive revenue for its mobile phone WAP/Portal service and other content, such as video games, the analyst wrote, and investors are completely discounting mobile assets.
"We feel shares could become attractive for value investors." Still, the analyst said he doesn't expect a significant amount of growth for the company going forward. Wood, who doesn't own any shares in the company, rates the stock at neutral.
Shares of InfoSpace recently changed hands at $18.00, down $4.64, or 20.5%.
Raymond James downgraded InfoSpace to underperform from market perform, citing the loss of the company's largest mobile content customer.
"The value of InfoSpaces's intermediary role in the mobile content market remains uncertain," Raymond James analyst Mike Latimore wrote in a research note.
Latimore doesn't own any shares in the company, but Raymond James makes a market in shares of InfoSpace.
Although Wedbush Morgan analyst Scott P. Sutherland noted the impact to the mobile segment will be severe, he said InfoSpace's online business still comprises the majority of its profit.
"Combined with a strong balance sheet with $12.36 in net cash per share, we believe there will be some support for shares," Sutherland wrote in reiterating his hold rating on the stock.
Sutherland doesn't own any shares in InfoSpace, but Wedbush Morgan makes a market in the company.
Robert W. Baird analyst William V. Power noted that the transition to direct licensing agreements between the carriers and music labels could also hurt other music content aggregators, including Openwave Systems's Musicwave, which accounted for 7.6% of that company's fourth-quarter revenue.
Power maintained a neutral rating on InfoSpace. Baird makes a market in Openwave Systems and expects to receive or intends to seek investment banking compensations from InfoSpace and Openwave within the next three months.
-By Nicole Urbanowicz, Dow Jones Newswires; 201-938-5460; nicole.urbanowicz@dowjones.com
(END) Dow Jones Newswires "
Posted to the site on 21st September 2006