Audible CEO Accentuates the Positive as Firm Predicts 2006 Loss
Predicting the company will lose $1-$1.5 million in 2006, Audible CEO Don Katz nonetheless offered several reasons for optimism this year, including new partnerships, reduced churn and positive feedback from new tiered offerings. A late launch to its revamped website and higher than expected marketing and operating expenses pushed down the firm’s 2005 financials, Audible said in releasing preliminary results. It expects $62-$64 million revenue in 2006, down from $62-$65 million in prior guidance, which also predicted net income of $1.6-$2 million. But Katz, speaking to a Citigroup investor conference late Tues., reassured investors that the firm was solid in its core subscription market and didn’t expect a challenge from Apple, which offers its downloads a la carte.
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“The bottom line wasn’t what we expected” in 2005, but “we couldn’t be more excited about the huge marketplace opening up before us” in 2006, Katz said. It has nearly 300 content deals, more than 60% of which are multiyear exclusives, he said. About 30 new Audible-ready devices are coming to market this year, including iPod peripherals, phones and in-home devices. New revenue streams in WordCast, which helps podcasters with advertising insertion and management, and wireless download service AudibleAir will help as well, Katz said. He looks forward to getting “streams off the Eiffel tower” when traveling.
Church declined 1.1% in the quarter, which is “quite impressive, a major positive” in the volatile world of online subscriptions, Katz said. But he somewhat dismissed the feat, crediting holiday and gift sales. The company also limited its free-trial offers in the quarter: “You're going to have a heck of a lot more new members -- the question is how long you keep them” after the trial ends, Katz said. The firm had 100% customer growth in 2005, which is “maybe 20% above what anybody was expecting… It was a year for getting our act together.”
The late launch of the revamped site hurt gross profit and was “relatively bumpy,” Katz admitted. The user experience wasn’t good enough and the site still has IT problems, but he promised “huge speed changes” in site loading and performance early this year. Legal expenses and printing costs affected the bottom line: “Frankly these things just added up.”
Katz saw no reason for Audible’s symbiosis with Apple to change. With its 65,000 subscriptions now, “we probably track very nicely” with iPod sales year-over- year. Growth is certain: “Half our customers are still unaware… that you can have an iPod read you a book,” he said. Asked by an analyst if Apple could “disaggregate” the book download market by drawing away Audible customers from its website, Katz said more than 80% of Audible’s revenue comes from subscriptions. Apple provides a la carte downloads, and non-iPod customers can’t use its download store, he added.
Audible is “seeing good migration” to its new higher- priced subscriptions, which top out at $22.95 monthly, Katz said. The $14.95 and $22.95 plans provide a set number of credits for subscribers to use for most titles at Audible, and the ability to roll over credits month by month if not fully used. The rollover addition helped stave off fleeing customers, Katz said.