Napster Raises Sales Forecast for 2nd Time in a Month

Napster Inc. (NAPS) Tuesday raised its quarterly revenue forecast for the second time in about a month, citing a big jump in subscribers and stronger-than-expected sales of music downloads, sending its shares nearly 15 percent higher.

The company said it expects revenue for the fourth quarter ended March 31 of $16.5 million to $17.5 million, up from about $15 million. Analysts, on average, were expecting sales of about $14.6 million, according to Reuters Estimates.

At least one analyst said the company, whose stock rose as much as 19 percent in early trading, was following a pattern of being "conservative" with its sales outlook.

"This is no different than the last several quarters," said Steven Frankel, an analyst with Adams Harkness Inc., who rates Napster shares "reduced." "This is more a function of conservative guidance than anything else."

Los Angeles-based Napster, which is yet to become profitable, carries the highest price-to-sales ratio of the five stocks in the S&P Home Entertainment Index (search), at 4.47. Apple Computer Inc. (AAPL), viewed as a highflyer, trades at a price-to-sales ratio of 2.47.

Napster said it ended the fiscal fourth quarter with more than 410,000 subscribers, adding 143,000 during the period, representing sequential subscriber growth of more than 53 percent.

The company said its "Napster to Go (search)" marketing campaign helped to spur the growth in subscribers, and pay-per-download music purchases helped push sales higher. The "Napster to Go" service allows consumers to fill portable digital music players with an unlimited amount of music instead of incurring per-song charges.

The company on March 3 had raised its revenue outlook to $15 million from a prior forecast of $14 million

Shares of Napster rose 88 cents, or 14.3 percent, at $7.05 on the Nasdaq, after trading higher before the market opened on the Inet electronic network.