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All Cued Up: CDnow Vs. N2K On Wall Street's Hit List

If investors treated CDnow on the same trailing revenue basis as rival N2K perhaps shares in the Web-based music e-tailer could be trading north of $30 a pop.

Both firms hover at about $300 million market cap, and both ran about 35% since going public, but it's CDnow's revenue leadership so far that's the key difference. Welcome to the jukebox of unfettered love or simply unchained melody.

Take a look at our number crunching comparative analysis:

CDnow & N2K Side By Side

IPO Comparison CDnow N2K
  CDNW NTKI
Shares offered 4.1 3.3
IPO share price $ 16.00 $ 19.00
x Shares outstanding 14.35 11.71
= IPO capitalization $ 229.60 $ 222.43
IPO Proceeds $ 65.60 $ 63.27
Share closing price 02.23.98 $ 21.50 $ 25.63
Market capitalization 02.23.98 $ 308.53 $ 299.98
Percent difference 34% 35%
1997 revenue $ 17.37 $ 11.26
1997 losses $ (10.75) $ (28.74)
Revenue multiple 18 27

N2K, which may be better known as the name behind Music Boulevard, went public last November at $19 per share, generating a lot of hoopla and noise that gave it first-to-market (Wall Street) recognition. Its $11.3 million sales for 1997, however, puts it a distant second to CDnow which had $17.4 million sales last year and posted less losses than N2K.

Going forward, Media Metrix named Music Boulevard the fastest growing music site on the Internet in its January number releases. N2K's fourth-quarter revenue reached $4.8 million, a rate that puts it on target for about $20 million revenue for 1998. CDnow posted better than that for 4Q with $7.9 million revenue or more than $30 million annualized at that rate.

The key differentiators here are marketing and dealmaking skills. In this area, N2K seems to have outmuscled CDnow, signing deals with AOL, MTV, The Grammys, Netscape, and WebTV. N2K spent $11.5 million in marketing dollars in 1997, more than its entire revenue.

N2K ramped up a $30 million promo deal with CBS Cable, the leading provider of country music entertainment via its TNN: The Nashville Network and CMT: Country Music Television cable networks, as well as country.com with which N2K created Country Music Boulevard. The company also has an agreement with a kiosk firm for touch screen music sales in supermarkets.

While recording companies scale back Web efforts and shy from the big plunge, will CDNow or N2K become the Amazon.com of this space? Or will Amazon, looking to expand its product line beyond books, ramp up music as another revenue route. The hit parade is just starting.