One thing we could say about the covering analyst on RealNetworks, Inc. (NASDAQ:RNWK) - they aren't optimistic, having just made a major negative revision to their near-term (statutory) forecasts for the organization. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analyst has soured majorly on the business. Surprisingly the share price has been buoyant, rising 13% to US$0.56 in the past 7 days. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.
Following the latest downgrade, the current consensus, from the lone analyst covering RealNetworks, is for revenues of US$51m in 2022, which would reflect a considerable 8.8% reduction in RealNetworks' sales over the past 12 months. Losses are supposed to balloon 47% to US$0.50 per share. Yet prior to the latest estimates, the analyst had been forecasting revenues of US$59m and losses of US$0.35 per share in 2022. Ergo, there's been a clear change in sentiment, with the analyst administering a notable cut to this year's revenue estimates, while at the same time increasing their loss per share forecasts.
The consensus price target fell 25% to US$3.00, with the analyst clearly concerned about the company following the weaker revenue and earnings outlook.
Of course, another way to look at these forecasts is to place them into context against the industry itself. Over the past five years, revenues have declined around 3.5% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 12% decline in revenue until the end of 2022. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 14% per year. So it's pretty clear that, while it does have declining revenues, the analyst also expect RealNetworks to suffer worse than the wider industry.
The Bottom Line
The most important thing to take away is that the analyst increased their loss per share estimates for this year. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that RealNetworks' revenues are expected to grow slower than the wider market. Given the scope of the downgrades, it would not be a surprise to see the market become more wary of the business.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. At least one analyst has provided forecasts out to 2023, which can be seen for free on our platform here.
Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.
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