Audible: Keep Your Ears Open
Can you hear us now?
Something tells me that the good folks at Audible.com (ADBL) will not be requesting Boo T-shirts anytime soon, after our gentle critter unceremoniously undressed them following their Q4 report. I have been following ADBL for a long time in a Peter Lynch kind of way. Their product - digital delivery of spoken language content - is a God-send for English-as-a-second-language types like me, who despise reading (if you are wondering why I was a lawyer for 10 years . . .so do I). Want the highlights of the WSJ in your email box every morning? There they are. Don't want to log around the latest and greatest book? Dump it in your iPod. You get the idea.
So why the 33% post close dismemberment?
A few reasons: first, ADBL broke from the ranks of the unknowns thanks to a very tight relationship with Apple (AAPL) and its stock became a collateral ticker in the AAPL Mo-Mo game. Alas, Mo-Mo giveth and Mo-Mo taketh away.
Sin No. 2: the conference call last night was all about spending more to grow faster. ADBL managed to survive the internet implosion because of conservative management bordering on the anal retentive. To give you a visual, if prior to the conference call CEO Donald Katz looked like Donald Trump, preaching the gospel like Jerry Falwell, with the voice of James Earl Jones, what showed up was Michael Jackson - white gloves and all. The sell side was all ears for great iPod-driven subscriber additions, earnings guide-up, blah-blah-blah, and what they got was: we are going to spend a ton of money to grow this puppy like there is no tomorrow.
Now I am no genious, but following the November $45M secondary, was it really a shocker that ADBL was going to spend that money on some new strategy? Did people think that ADBL management would use the $45M as mattress stuffing?
I am not going to discuss the "numbers" or whether ADBL is cheap or expensive because I don't think they are relevant to today's story. The way I see it, the keys to ADBL ultimate success are the following:
Content exclusivity: the vast majority of the content ADBL distributes and is likely to acquire is locked up under exclusivity agreements. Napster, iTunes, MusicMatch, they all have the technology to deliver digital spoken language, but the fact remains that only ADBL can distribute the Wall Street Journal, the New York Times, etc. etc. etc. No content - no competition; and monopolies are usually pretty profitable. The extent to which ADBL can continue secure exclusive rights to content is much more important to me than the "30% operating margin target" analysts seem to be obsessing over.
The educational sector: Since ADBL announced a trial program at Penn State University more than a year ago (link) (followed by Duke University distributing an iPod to the 2008 incoming class) this angle of the story has struck me as the home-run play. If ADBL can lock up textbook publishers, coax students and schools to adopt digital files, and/or penetrate the continuing education / corporate training area, ADBL has the potential to become a household name. The cost savings for the publishers, students, schools or corporations in not having to deal with tonnage of books is hard to overestimate. Furthermore, teachers won't be hamstrung in their curriculum by the number of books that they can compel a student to buy (often just for one chapter): a reading list from 150 books can be neatly packaged in a digital folder.
Is this a realistic vision? Not now or in the near future. The education market is an animal unto itself and it is intrinsically too diverse to find a single-fit solution for everyone. ADBL's embryonic initiative for now involves hiring the right people to address the market. But that market is massive, and IMHO, the announcement of the creation of an educational division within ADBL was the story from last night's call.
Painless delivery: I have subscribed to ADBL service for several months and the technology for getting the WSJ from my PC to a CD or my iPod is not bad but is not great either. Last night ADBL announced that they would start delivering content to mobile phones. The execution on the technology side of thing will be critical.
Will all the potential of ADBL's service be transformed into profits? I don't know, but going in spurt mode now that iPods and other mp3's are going for critical mass is - in my opinion - the right decision at the right time.
And yes fellow Minyans, I do dream of the day that Critters' wisdom will stream into your cell phones - and that has got me very excited!!
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