MP3.com Posts Strong Sales Growth for Quarter

Having settled its legal troubles, online music firm MP3.com Inc. on Wednesday reported strong fourth-quarter sales growth and a loss that was far smaller than expected.

The once-controversial online music company, which expects to be profitable by the end of this year, posted a net loss of $3.1 million, or 5 cents a share, for the three months ended Dec. 31. That is a marked improvement from a year earlier, when it lost $10.6 million, or 17 cents a share.

Wall Street analysts had expected the company to report a loss of 13 cents a share, according to those polled by First Call/Thomson Financial.

Revenue surged 44%, to $22 million, up from $15.3 million.

“This was a spectacular quarter for this company,” said A. Sasa Zorovic, a financial analyst with BancBoston Robertson Stephens. “We weren’t projecting them to be where they are now for at least two more quarters.”

Indeed, company officials said they were able to push forward aggressively on partnership and technology development toward the end of last year, in part because their legal troubles had finally been resolved.

“We paid a price for being a pioneer,” said Paul Ouyang, MP3.com’s chief financial officer.

Five major labels sued San Diego-based MP3.com last year over its My.MP3.com service, which gave users online access to copies of the CDs in their collections. The lawsuit said MP3.com violated copyright laws by creating a database of 80,000 unauthorized albums and should be forced to pay billions of dollars in damages.

The company agreed to settle the suit, but hasn’t disclosed terms. In Wednesday’s earnings report, MP3.com said it set aside $170 million to cover legal bills and settlement fees tied to the copyright suit and related cases.

For the full year, MP3.com reported a net loss of $23 million, or 34 cents a share, on revenue of $80.1 million. For 1999, the company posted a net loss of $36.3 million, or 67 cents a share, on revenue of $21.9 million. The year-end results do not include $256.5 million in charges.

Analysts praised the company’s performance, particularly its move to cut back on its operating expenses. But they cautioned that such measures are only the first step in a long journey.

“MP3.com worked hard to get those expenses under control, and clearly that is a big plus,” said Heath Terry, vice president of research at Credit Suisse First Boston. “But this is not a company that can survive on $20 million a quarter in revenues and still justify its valuation,” he said.

Wednesday’s news bumped MP3.com shares up nearly 26%, to $6.25, in after-hours trading. Before announcing financial results, after the market’s close, the company’s stock price rose 3 cents, to $4.97 a share, at the close of regular Nasdaq trading.