This Broker Just Slashed Their RealNetworks, Inc. (NASDAQ:RNWK) Earnings Forecasts

Market forces rained on the parade of RealNetworks, Inc. (NASDAQ:RNWK) shareholders today, when the covering analyst downgraded their forecasts for this year. Both revenue and earnings per share (EPS) forecasts went under the knife, suggesting the analyst has soured majorly on the business. Bidders are definitely seeing a different story, with the stock price of US$0.56 reflecting a 13% rise in the past week. Whether the downgrade will have a negative impact on demand for shares is yet to be seen.

After the downgrade, the consensus from RealNetworks' solo analyst is for revenues of US$51m in 2022, which would reflect a chunky 8.8% decline in sales compared to the last year of performance. Per-share losses are expected to explode, reaching US$0.50 per share. However, before this estimates update, the consensus had been expecting revenues of US$59m and US$0.35 per share in losses. So there's been quite a change-up of views after the recent consensus updates, with the analyst making a serious cut to their revenue forecasts while also expecting losses per share to increase.

View our latest analysis for RealNetworks

The consensus price target fell 25% to US$3.00, implicitly signalling that lower earnings per share are a leading indicator for RealNetworks' valuation.

Of course, another way to look at these forecasts is to place them into context against the industry itself. Over the past five years, revenues have declined around 3.5% annually. Worse, forecasts are essentially predicting the decline to accelerate, with the estimate for an annualised 12% decline in revenue until the end of 2022. Compare this against analyst estimates for companies in the broader industry, which suggest that revenues (in aggregate) are expected to grow 14% annually. So while a broad number of companies are forecast to grow, unfortunately RealNetworks is expected to see its sales affected worse than other companies in the industry.

The Bottom Line

The most important thing to take away is that the analyst increased their loss per share estimates for this year. Unfortunately the analyst also downgraded their revenue estimates, and industry data suggests that RealNetworks' revenues are expected to grow slower than the wider market. After such a stark change in sentiment from the analyst, we'd understand if readers now felt a bit wary of RealNetworks.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At least one analyst has provided forecasts out to 2023, which can be seen for free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.