*Update* RealNetworks Posts a Real Strong Quarter

The stock skyrockets 40% ahead of an earnings report that beats Street estimates.
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RealNetworks

(RNWK) - Get Report

posted a loss of $736,000, or 2 cents a share, for its first quarter ended March 31, beating Wall Street's expectations by a penny. The results marked the fifth consecutive quarter in which RealNetworks has beaten the

First Call

consensus.

The company also set a 2-for-1 stock split, payable May 10 to shareholders of record April 27.

Revenue for the period nearly doubled to $23.5 million from $12.5 million a year earlier. In the year-earlier period, the company reported a loss of $2.2 million, or 7 cents a share.

Advertising revenue, which several analysts said was a small but important growth driver at the Seattle-based streaming-media software maker, jumped to $1.3 million in the latest quarter from $462,000 a year earlier and showed 17% growth from fourth-quarter levels.

The company also reported continued growth of its RealPlayer, which has now reached 60 million registered users, up from 50 million registered users last quarter.

After dropping more than 40 points Monday, RealNetworks stock rebounded like an enraged Dennis Rodman, shooting up 52 7/16, or 40%, to close at 181 1/16.

The following story was posted at 9:36 a.m. EDT:

Looking for Real Growth at RealNetworks

SAN FRANCISCO -- Advertising-revenue growth should be the real story when

RealNetworks

(RNWK) - Get Report

reports first-quarter earnings this afternoon.

Since hitting an all-time high of 263 3/4 on April 13, the stock has nosedived 51%, including a 25% retreat Monday. But with the company scheduled to report first-quarter results after the market closes Tuesday, could the stock drop even further?

Not likely, say analysts, since the leading streaming-software maker is getting set to report another solid quarter. Given the beating the stock has taken without any corresponding deterioration in the company's business, even an earnings report in line with the Street's expectations could help the stock recover -- that is, if the volatile tech sector calms down.

"I'm not expecting any upside or downside surprises," says Jeff Goverman, an analyst with

Pacific Crest Securities

who expects a loss of 3 cents a share. Meanwhile, Rob Martin, an analyst with

Friedman Billings Ramsey

, is expecting the company to beat estimates by a few pennies. (Neither company has an underwriting relationship with RealNetworks.)

The

First Call

consensus of analysts has RealNetworks losing 3 cents a share. The whisper number calls for a loss of 1 cent. That would fall in line with RealNetworks' tendency to beat the Street's official estimates: The Seattle-based company has consistently surpassed the consensus estimate by 2 to 3 cents for the last five quarters.

The biggest question facing RealNetworks, Goverman says, is how it can turn its market leadership into steady revenue growth. He's expecting revenue to expand by about 7% to 8% from fourth-quarter levels to around $21 million, suggesting a slowdown from the last three quarters' growth rate of 15% to 20%.

Breaking down the revenue figures, Goverman is most interested in seeing growth on the advertising front, which has historically been the company's smallest revenue stream, accounting for about 5% of revenue. Martin at Friedman Billings is also expecting a significant if undramatic rise in ad revenue.

"What's of interest to people is how well they do on the advertising side," says Goverman. "The stock's price is based on its ability to become a content player."

John Powers, an analyst with RealNetworks underwriter

BancBoston Robertson Stephens

, is also expecting revenue to come in just above $21 million. He says that the company's RealPlayer streaming software is currently being downloaded at the rate of around 175,000 clients per day. That would increase the number of registered users by around 15 million this quarter. Last quarter, RealNetworks said that the RealPlayer had reached 50 million registered users.

One analyst at an institutional investment house, who says he still likes the company but is not following it closely, said his firm recently sold most of its holdings in RealNetworks. The reasons: too much risk of competition with

Microsoft

(MSFT) - Get Report

and the stock's exceedingly high valuation.

Although analysts continue to monitor Microsoft's competing

Media Player

, another competitor has been quietly building up its own streaming media arsenal:

Apple

(AAPL) - Get Report

. Yesterday Apple released a beta version of its new streaming software,

QuickTime 4.0

.

The new QuickTime features an improved interface and a host of new technical capabilities -- including a time display, a streaming media bookmark file, and the ability to play back and stream

MP3

files. In an attempt to spark interest among content developers, Apple also said it will release portions of the source code to its QuickTime technology. QuickTime, like many of Apple's products, has gained a following among the digerati and creative types in the media and publishing industries. The trailer for the new

Star Wars

film, for example, was released exclusively on QuickTime. That trailer has been downloaded more than 8 million times.