Napster (NAPS) gets a lesson in reality, say hello to Amazon.com’s MP3 store

Napster Inc. (NAPS) is down 8% today after reporting a weak Q1 guidance yesterday. Napster missed revenue estimates in the April to June quarter by $3.5 million, still they are expecting $31 million for the time period. Net revenues for the Q4 06 were $29.1 million, up 9% from $26.8 million in the prior year quarter. Shares of Napster are trading around $3.70 and considering the 52-week range of $2.55 to $4.92, that’s not so bad.

So what did the analysts think after the call?        

ThinkEquity Partners felt more "upbeat" after the earnings call,   and reiterated a "Buy" rating with a $6 target price.

Kaufman Bros.  rates the stock a "Buy," and expects Napster‘s revenue to exceed $32 million in its fiscal first quarter. Kaufman has a $7 price target for the stock, which they think will happen in the next year.         

So, what could possibly stop Napster from reaching $6 to $7 a share? Try Amazon.com (AMZN).

Amazon.com just announced it will launch a digital music store later this year offering millions of songs in the DRM-free MP3 format from more than 12,000 record labels.      
EMI Music’s digital catalog is the latest addition to the store. Every song and album in the Amazon.com digital music store will be available exclusively in the MP3 format without digital rights management (DRM) software. Amazon’s DRM-free MP3s will free customers to play their music on virtually any of their personal devices — including PCs, Macs, iPods, Zunes, Zens — and to burn songs to CDs for personal use.

That’s right people, no need to worry if you bought that song at iTunes or through Microsoft Windows Media, with their own special format – MP3 is universal, it will play on any device. If you buy a tunes using Napster, they won’t play on your iPod. A Microsoft Zune can’t play tunes bought on iTunes. But every single MP3 player on earth, including the iPod, Zune, or any SanDisk player, can play a tune bought from the future Amazon.com MP3 store.

I’m not telling you to go out and by Amazon (AMZN) shares because of this new MP3 store that is supposed to be out later this year (besides at $62 a share, they are spendy). Just be aware that iTunes (AAPL), Napster, Microsoft (MSFT), Rhapsody, are all going to be pushed around and watch their market share disappear thanks to Jeff Bezos and his gang at Amazon. Bezos has the right idea, he is giving the consumer want it wants, and that’s what always wins in the end.

So if Napster has to compete with a future Amazon MP3 store, how in the heck will it ever hit $6 to $7 a share? The answer — it won’t.

Frank Lara Jr.         

Frank Lara Jr.  can be reached at [email protected]; he does not own securities in   the companies he covers.