Investors were unimpressed by Audible's growth plans for 2005, hammering the company's stock over concerns about the cost of expansion. The company, which provides downloadable material ranging from newspapers to magazines to books, announced that it will follow its first profitable year with three ambitious programs—Audible UK, Audible Education and Audible Wireless, an over-the-air delivery service. Although the new initiatives will cut profits in 2005, company chairman Don Katz promised not only that Audible will be "solidly profitable" in 2005, but that the new programs will "dramatically increase" sales and profitability in 2006 and beyond. Nonetheless, the stock price fell 54% the day after the announcement, to $17.32 a share.
Audible's 2004 results showed sales jumping a whopping 78%, to $34.4 million. The company also posted the first earnings in its history, $2.2 million, compared to a loss of $3.6 million in 2003. Sales for 2005 are projected to increase to between $59 million and $62 million. Sales will benefit from a projected doubling of Audible members next year, continued growth from iPod downloads and increased marketing efforts that the company expects to boost sales per customer.
The launch of Audible UK will cost about $2 million and Katz expects the operation to be cash-flow positive by 2006. The U.K. operation will launch with content from BBC Audiobooks, part of a new agreement reached between the two companies last week that includes about 900 backlist titles, access to all new titles as well as hundreds of hours of performance-based materials (think Fawlty Towers). Audible will be able to use most of the BBC content in its U.S. operations as well. Penguin Group UK has also signed a deal with Audible.
The Audible Education initiative will focus on developing partnerships with print companies already in the education and training markets, Katz said.
Audible CFO Andy Kaplan acknowledged that stepped-up investment in 2005 will prevent the company from achieving its 30% pretax operating goal in 2005, but he predicted that it will hit the target in 2006. Pretax margin in 2004 was 3.7%. Questioned by investment analysts about the unexpected acceleration of Audible's expansion plans, Katz said he believes "it's the right time to step on the gas."