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Audiohighway.com's Comeback Trail

It's been a long time since shareholders of audio content Web site audiohighway.com (AHWY) have felt like part of the Internet stocks bull run.

Besides an ever-so-brief spike last April that took shares as high as 38 5/8 -- a healthy 428 percent above the company's December 1998 IPO first-day closing price -- AHWY has been drifting down steadily since last August. On Friday, shares hit an all-time low of 4 3/4, or 27 percent below the $6.50 offer price.

And then, seemingly out of nowhere, AHWY came alive, gaining 53 percent in the week of trading ended Wednesday to finish at 8 5/16. (AHWY shares backslid in early trading Thursday to 7 3/4.) In Friday's issue of internet.com's Internet StockTracker weekly newsletter, AHWY will be listed, for the first time ever, as the top-performing Internet stock of the week.

Making AHWY's surge all-the-more notable is that it came during a week in which tech stocks were staggered by the Barron's bombshell and continued interest rate fears.

The chief catalysts for the recent turnaround are separate marketing agreements with RealNetworks (RNWK) and Yahoo (YHOO)Yahoo! Basically, audiohighway.com has committed to advertising campaigns on the Yahoo and RealNetworks sites through the rest of this year.

While AHWY already has a content agreement with RealNetworks (announced last November), the dual ad campaigns represent the company's most ambitious effort yet to raise its profile -- and stock price.

AHWY shares ran up 56 percent on Monday alone before the ad deals were announced. Two days later, AWHY climbed another 10 percent as the company announced its site had 5.75 million visits in February. According to the audiohighway.com, that's more than 30 times the traffic in September 1998, when the site went live.

Since audiohighway.com offers mostly free audio content -- news, audiobooks, interviews, comedy -- it relies heavily on advertising revenue, which won't grow if traffic to the site doesnt. So any indication of growth has to be encouraging.

But it's a bottom-line world, so the real test for AHWY comes at the end of this month, when the company releases its Q4 and annual earnings reports. Shares went into a tailspin last November after AHWY's Q3 report showed widening losses per share (50 cents) after two consecutive quarters of declining losses. Revenue grew 146 percent over the previous quarter, though they totaled only $653,000.

For audiohighway.com to retain momentum, the upcoming report must show continued strong revenue growth as well as declining losses. With a current market cap of $43 million, audiohighway.com looks to me like a strong acquisition candidate. Good quarterly numbers could boost the stock and give shareholders a better deal should the time come.


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