Intrinsic value of RealNetworks - RNWK

Previous Close

$2.21

  Intrinsic Value

$0.44

stock screener

  Rating & Target

str. sell

-80%

Previous close

$2.21

 
Intrinsic value

$0.44

 
Up/down potential

-80%

 
Rating

str. sell

We calculate the intrinsic value of RNWK stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  80
  82
  84
  87
  89
  92
  95
  99
  102
  106
  110
  115
  120
  125
  130
  136
  142
  148
  155
  162
  170
  178
  186
  195
  204
  214
  224
  235
  246
  258
Variable operating expenses, $m
  119
  122
  125
  128
  132
  136
  141
  146
  151
  157
  162
  168
  175
  183
  191
  199
  208
  217
  227
  237
  248
  260
  272
  285
  299
  313
  328
  344
  361
  378
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  119
  122
  125
  128
  132
  136
  141
  146
  151
  157
  162
  168
  175
  183
  191
  199
  208
  217
  227
  237
  248
  260
  272
  285
  299
  313
  328
  344
  361
  378
Operating income, $m
  -39
  -39
  -40
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -120
EBITDA, $m
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -63
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
Earnings before tax, $m
  -39
  -39
  -41
  -42
  -43
  -44
  -46
  -48
  -49
  -51
  -52
  -54
  -57
  -59
  -62
  -65
  -67
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -39
  -39
  -41
  -42
  -43
  -44
  -46
  -48
  -49
  -51
  -52
  -54
  -57
  -59
  -62
  -65
  -67
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  100
  102
  105
  108
  111
  115
  118
  123
  127
  132
  137
  143
  149
  155
  162
  169
  176
  184
  193
  202
  211
  221
  231
  242
  254
  266
  279
  292
  306
  321
Adjusted assets (=assets-cash), $m
  100
  102
  105
  108
  111
  115
  118
  123
  127
  132
  137
  143
  149
  155
  162
  169
  176
  184
  193
  202
  211
  221
  231
  242
  254
  266
  279
  292
  306
  321
Revenue / Adjusted assets
  0.800
  0.804
  0.800
  0.806
  0.802
  0.800
  0.805
  0.805
  0.803
  0.803
  0.803
  0.804
  0.805
  0.806
  0.802
  0.805
  0.807
  0.804
  0.803
  0.802
  0.806
  0.805
  0.805
  0.806
  0.803
  0.805
  0.803
  0.805
  0.804
  0.804
Average production assets, $m
  12
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  37
Working capital, $m
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
Total debt, $m
  1
  2
  3
  4
  6
  7
  9
  11
  13
  15
  17
  19
  22
  25
  27
  31
  34
  37
  41
  45
  49
  53
  57
  62
  67
  72
  78
  84
  90
  96
Total liabilities, $m
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  87
  91
  95
  100
  104
  109
  115
  120
  126
  132
  138
Total equity, $m
  57
  58
  60
  61
  63
  65
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  144
  151
  159
  166
  174
  183
Total liabilities and equity, $m
  100
  102
  105
  107
  111
  114
  118
  123
  127
  132
  137
  143
  149
  155
  162
  169
  176
  184
  193
  202
  211
  221
  232
  242
  253
  266
  279
  292
  306
  321
Debt-to-equity ratio
  0.010
  0.030
  0.050
  0.070
  0.090
  0.110
  0.130
  0.150
  0.170
  0.190
  0.220
  0.240
  0.260
  0.280
  0.300
  0.320
  0.340
  0.350
  0.370
  0.390
  0.410
  0.420
  0.440
  0.450
  0.460
  0.480
  0.490
  0.500
  0.510
  0.530
Adjusted equity ratio
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569
  0.569

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -39
  -39
  -41
  -42
  -43
  -44
  -46
  -48
  -49
  -51
  -52
  -54
  -57
  -59
  -62
  -65
  -67
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
  -125
Depreciation, amort., depletion, $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
Funds from operations, $m
  -35
  -36
  -37
  -38
  -40
  -41
  -42
  -44
  -46
  -48
  -49
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  -35
  -36
  -37
  -38
  -39
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -118
Maintenance CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Cash from investing activities, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
Free cash flow, $m
  -37
  -38
  -39
  -40
  -42
  -43
  -45
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -114
  -119
  -125
Issuance/(repayment) of debt, $m
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
Issuance/(repurchase) of shares, $m
  40
  41
  42
  43
  45
  46
  48
  50
  52
  54
  55
  57
  60
  63
  66
  69
  72
  75
  79
  82
  86
  91
  95
  100
  105
  110
  115
  121
  127
  133
Cash from financing (excl. dividends), $m  
  41
  42
  43
  44
  46
  48
  50
  52
  54
  56
  57
  59
  63
  66
  69
  72
  75
  78
  83
  86
  90
  95
  99
  105
  110
  115
  121
  127
  133
  139
Total cash flow (excl. dividends), $m
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
Retained Cash Flow (-), $m
  -40
  -41
  -42
  -43
  -45
  -46
  -48
  -50
  -52
  -54
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -115
  -121
  -127
  -133
Prev. year cash balance distribution, $m
  23
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -13
  -37
  -38
  -39
  -40
  -42
  -43
  -45
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -64
  -67
  -71
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -119
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  -13
  -34
  -33
  -32
  -31
  -30
  -29
  -28
  -27
  -25
  -24
  -22
  -21
  -19
  -17
  -16
  -14
  -12
  -11
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
Current shareholders' claim on cash, %
  59.8
  35.5
  21.0
  12.4
  7.3
  4.3
  2.5
  1.5
  0.9
  0.5
  0.3
  0.2
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

RealNetworks, Inc. creates applications and services that enable to connect with digital media. The Company connects consumers with their digital media directly and through partners, focusing on supporting various network, devices, media types and social networks. It operates through three segments: Consumer Media, Mobile Services and Games. Within its Consumer Media business, its RealPlayer media player software includes features and services that enable consumers to discover, play, download, manage and edit digital video, stream audio and video, download and save photos and videos from the Web, transfer and share content on social networks, and edit their own photo and video content. The Mobile Services segment consists of digital media services it provides to mobile and online service providers as software as a service offerings. It develops, publishes, licenses and distributes casual games.

FINANCIAL RATIOS  of  RealNetworks (RNWK)

Valuation Ratios
P/E Ratio -2.2
Price to Sales 0.7
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow -3.5
Price to Free Cash Flow -3.2
Growth Rates
Sales Growth Rate -4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate -24.2%
Financial Strength
Quick Ratio 39
Current Ratio 0
LT Debt to Equity 2.2%
Total Debt to Equity 4.5%
Interest Coverage 0
Management Effectiveness
Return On Assets -25.4%
Ret/ On Assets - 3 Yr. Avg. -29.9%
Return On Total Capital -34.3%
Ret/ On T. Cap. - 3 Yr. Avg. -38.8%
Return On Equity -35.2%
Return On Equity - 3 Yr. Avg. -39.2%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 46.7%
Gross Margin - 3 Yr. Avg. 47.3%
EBITDA Margin -23.3%
EBITDA Margin - 3 Yr. Avg. -39.9%
Operating Margin -31.7%
Oper. Margin - 3 Yr. Avg. -43.7%
Pre-Tax Margin -29.2%
Pre-Tax Margin - 3 Yr. Avg. -47%
Net Profit Margin -30.8%
Net Profit Margin - 3 Yr. Avg. -47.5%
Effective Tax Rate -5.7%
Eff/ Tax Rate - 3 Yr. Avg. -2%
Payout Ratio 0%

RNWK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RNWK stock intrinsic value calculation we used $78.718 million for the last fiscal year's total revenue generated by RealNetworks. The default revenue input number comes from 0001 income statement of RealNetworks. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our RNWK stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for RNWK is calculated based on our internal credit rating of RealNetworks, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of RealNetworks.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of RNWK stock the variable cost ratio is equal to 148.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for RNWK stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for RealNetworks.

Corporate tax rate of 27% is the nominal tax rate for RealNetworks. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the RNWK stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for RNWK are equal to 14.4%.

Life of production assets of 6.2 years is the average useful life of capital assets used in RealNetworks operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for RNWK is equal to -9.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $79.173 million for RealNetworks - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 37.612 million for RealNetworks is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of RealNetworks at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ RealNetworks: 3Q Earnings Snapshot   [05:30PM  Associated Press]
▶ Facial recognition tech at schools fuels privacy debate   [Sep-30-18 07:26PM  Associated Press]
▶ Nordstrom names Expedia and RealNetworks veteran to top tech job   [Aug-06-18 01:59PM  American City Business Journals]
▶ RealNetworks: 2Q Earnings Snapshot   [Aug-01-18 05:16PM  Associated Press]
▶ RealNetworks: 1Q Earnings Snapshot   [May-03-18 05:23PM  Associated Press]
▶ RealNetworks to Release First Quarter 2018 Results May 3   [Apr-17-18 09:00AM  PR Newswire]
▶ RealNetworks posts 4Q profit   [Feb-07-18 05:09PM  Associated Press]
▶ RealNetworks reports 3Q loss   [Nov-01-17 04:19PM  Associated Press]
▶ RealNetworks Announces Second Quarter 2017 Results   [Aug-03-17 04:01PM  PR Newswire]
▶ RealNetworks to Release 2nd Quarter Results August 3   [Jul-13-17 04:01PM  PR Newswire]
▶ ETFs with exposure to RealNetworks, Inc. : May 9, 2017   [May-09-17 05:00PM  Capital Cube]
▶ RealNetworks reports 1Q loss   [May-03-17 05:01PM  Associated Press]
▶ RealNetworks Names Cary Baker as Chief Financial Officer   [Apr-27-17 04:01PM  PR Newswire]
▶ RealNetworks to Release 1st Quarter Results May 3   [Apr-12-17 04:01PM  PR Newswire]
▶ ETFs with exposure to RealNetworks, Inc. : April 5, 2017   [Apr-05-17 05:23PM  Capital Cube]
▶ Allen Institute hires RealNetworks CFO Marjorie Thomas   [Mar-14-17 03:49PM  at bizjournals.com]
▶ Allen Institute hires RealNetworks CFO Marjorie Thomas   [03:49PM  American City Business Journals]
▶ RealNetworks reports 4Q loss   [05:22PM  Associated Press]
▶ RealNetworks Expands into Latin America with Vivo   [Nov-01-16 06:00AM  PR Newswire]
▶ RealNetworks to Release 3rd Quarter Results November 3   [Oct-13-16 01:01PM  PR Newswire]

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