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Tickers in this Article: RNWK, AMZN, MSFT, AAPL
RealNetworks' (Nasdaq:RNWK) net cash per share is nearly 70% of its market cap, allowing investors to buy the rest of the company for very little.

RealNetworks publishes software that allows customers to hear - and see - digital entertainment over the internet. The company operates Rhapsody, a subscription-based music service, and it also offers online gaming.

Lots Of Cash
As of June 30, RealNetworks had $415.8 million in cash and equivalents and $106.8 million in marketable securities, and a $100 million convertible debt issue. This comes to net cash per share of $2.96, compared to a Tuesday closing price of $4.32. An investor is paying a little over a dollar per share for the rest of RealNetworks. (For more about cash positions, read Cash-22: Is It Bad To Have Too Much Of A Good Thing?)

RealNetworks Cash Position
Cash and Equivalents
Marketable Securities
Convertible Debt
Net Cash
Cash Per Share
Price Per Share
Note: numbers in thousands, except per-share figures.

On July 1, after the second quarter ended, Real Networks used cash to pay down $99.9 million of the $100 million convertible issue.

A Few Negatives
The company adjusted its guidance downward during the second-quarter conference call due to "softness we're seeing in the online advertising market and packaged software sales due to macroeconomic factors".

RealNetworks' latest product introduction did not go smoothly and is now stuck in a legal morass. In September, the company introduced software called RealDVD that would allow customers to make a copy of a DVD to a computer for playback without the DVD. The management of RealNetworks anticipated a fight from the large movie studios, and filed a preemptive lawsuit against several major TV and movie studios. Unfortunately for RealNetworks, a judge has sided with the studios and issued a temporary order halting sales of the product pending a hearing. (Learn more about how to analyze legal risks at Litigation: Are Your Investments At Risk?)

Music Download Industry
RealNetworks competes against other companies with more resources in its subscription music business. Microsoft (Nasdaq:MSFT) also sells subscription-based music in conjunction with its Zune network, and Amazon (Nasdaq:AMZN) offers its own digital downloads. Apple Computer (Nasdaq:AAPL) competes against RealNetworks with its iTunes service. Apple is currently the industry leader, and a recent survey had 57% of respondents rank its service as the best, compared to 7% for Rhapsody. During the second-quarter conference call, RealNetworks said its revenue in the Music segment dropped 2% sequentially due to "lower average subscribers".

RealNetworks is also exposed to currency risk through its purchase of WiderThan Co. Ltd. in November 2006. The company got 15% of its revenues from South Korea in 2007. The South Korean currency, the won, recently hit a 10-year low against the U.S. dollar, and it is not certain if the won will recover anytime soon.

Bottom Line
Despite the risks, RealNetworks' excellent balance sheet and low valuation make the company an attractive play in the technology area.

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