Blog Post

Napster Activists: Company Worth At Least As Much As Last.Fm

imageBack in May we mentioned that three subscribers/shareholders of Napster had launched an improbable proxy fight hoping to get themselves representation on the company’s board. That still looks like a pretty tall order for the trio, though they’ve filed an interesting analysis on why they’re pressing their case. The core argument: Napster’s market value is basically zero (market cap minus saleable assets), yet CBS (NYSE: CBS) paid $280 million for Last.fm. Given that Napster should be able to do everything Last.fm can do and more, and it actually has real paying customers, the company should be valued higher. The fact that it’s not valued higher, say the shareholders, is due to a “lack of confidence in governance.”

By their math, even if you just valued Napster by breaking it up — selling all its assets and paying off its liabilities — the company would be worth $1.79 per share, compared to the $1.45 per share, or $69 million market value it trades at now.

The comparison to Last.FM is what’s interesting though, because it gets to this whole issue of valuing profit-less startups with fresh brands and a lively community (a boat lots of startups find themselves in). We don’t know how Last.FM would trade if it were public. It’s certainly possible that it would not be valued at the $280 million CBS paid for it. On the other hand, we can see why Napster couldn’t sell out for that much, given its shaky financials, non-community of paying subscribers, and a brand that carries very little cachet, unlike Last.FM. CBS obviously felt that it had a platform that could be built with Last.FM, something it probably wouldn’t get from buying a company like Napster (NSDQ: NAPS). As much as shareholders might like to make an apples-to-apples comparison, there are all kinds of factors making that tough. What is clear: Napster’s strategies so far haven’t paid off.

2 Responses to “Napster Activists: Company Worth At Least As Much As Last.Fm”

  1. I'm not sure that I agree with their logic. Trying to compare a private and public transaction is like looking at Apples and Oranges. In some ways, private companies are more valuable because they tend to have less baggage and still have their secrets. In some ways they might be less valuable because their is less liquidity, it really depends on the unique situation. For there to be a difference in valuations really isn't all that unusual. Also, LastFM didn't have to battle it out with the short sellers. I bet that there would have been plenty of people willing to gamble against LastFM' at a $280 million valuation.

  2. blindman canseeit

    Roxio's market cap was over $500M when they paid $5M for the rights to the Napster name in '03. They sold the disk burning software assets for about half that a few years later, and burned through all that cash. Napster CEO Chris Gorog has destroyed over $500M in shareholder value in a growing sector over the last 5 years while vastly overpaying himself (>1M /year), so the shareholders have a right to be pissed and pessimistic.