Audible ( ADBL) shares inched up slightly Monday after the company said it will extend its exclusive deal with Apple ( AAPL) for an additional three years. Stock in the audio content company rose 0.5 %, or 4 cents, to $7.46, in recent trading. Audible will continue to stock the virtual shelves of the iTunes Music Store with more than 16,000 audiobooks, paid podcasts, radio programs and language instruction, among other content, the company said. The original deal was set to expire in September 2007. Now, Audible will be the exclusive supplier of such content until September 2010. "Audible's audiobooks have been extremely popular with iTunes customers and consistent best-sellers," Eddy Cue, Apple's vice president of iTunes, said in a statement. Analysts applauded the extension and said it speaks to the value of the digital audio content company and bodes well for Audible over the long term. "That agreement is extremely important to Audible," says George Mihalos, an analyst with Gilford Securities, noting that iTunes sales represent 22% of revenue for the digital audio company. "If this deal was not extended, at some point it would have been a very big negative for the shares. It's nice to see them get
the deal done sooner." He said the market seemed to be "digesting" the news, as most investors expected the deal to be extended at some point. "There have been some concerns from bears that Apple may be building something on their own, and that doesn't seem to be the case," says analyst Richard Fetyko at Merriman Curhan Ford. The news of the extended deal "puts that argument to rest." "Apple would rather partner with the leader in the space rather than try and re-invent the wheel and negotiate contracts with the audio book publishers themselves," Fetyko says. He has a buy rating on the stock. His firm does not do banking with Audible, but it makes a market in the company.
The agreement is a nice vote of confidence after the fledgling company
reported a lackluster second quarter last week. Excluding special items, the audio content firm lost $619,000, or 3 cents a share for the quarter. A year ago, the company posted a net income of $958,000, or 4 cents a share. The latest-quarter result was better than the consensus forecast, which predicted the company would lose 5 cents a share. Sales grew 25% to $19.1 million but fell short of the analyst estimate of $21.5 million. "The results were weaker than we expected. Audible is still in a transition period," Mihalos says. "I think it's very much become a 'show-me' stock." For the current quarter, he'll be watching the subscriber growth of the company, and wants to see better clarity on how the new subscriber plans -- adjusted in December -- are panning out. "Management has to execute," he says. Mihalos has a hold rating on Audible. His firm does not do investment banking with the company.