CDNow shares edge up as company seeks coin

Stock up 8.93% to $3.81

One day after reaching an all-time trading low on the Nasdaq, shares of CDNow bumped upwards slightly Thursday as execs with the e-tailer said the company is seeking a major investor to help right the company’s financial woes.

Shares of Fort Washington, Pa.-based CDNow were up 8.93% Thursday to close at $3.81. Company’s 12-month high came on July 12 when shares traded at $23.27.

The precipitous drop in the stock price came after a double whammy of bad news this month: first, a merger agreement with Columbia House fell through, and then this week, auditor Arthur Andersen issued a report in which it expressed doubt as to whether the company would survive through the end of the year.

President and CEO Jason Olim readily admits that the company needs to find a major partner with deep pockets — and soon.

“The Arthur Andersen report is something anyone could have expected because on March 13, the executive team announced we had enough (funds) to get through Dec. 31,” he said. “It was a sensational headline that seemed to indicate there was new news.”

While Olim declined to reveal the status of negotiations with any outside investors, he said, “I have every confidence we will be able to find someone who wants to fund us.”

Aram Sinnerich, an analyst with Jupiter Communications in New York, believes that CDNow should join the fold of media powerhouse Viacom.

“It makes a lot of sense from CDNow’s perspective,” Sinnerich said. “They should sell themselves to Viacom by talking about their immense customer base. CDNow had more individual buyers than any other online retailer in February. All the customer data can be leveraged in some way.”

CDNow consistently ranks in the top 50 most-visited Web sites on the Internet, according to research firm PC Data Online. For February 2000, the CDNow had more than 8 million unique users, who spent an average of 42 minutes on the site.

High brand awareness

Cameron Meierhoefer, an analyst with PC Data, said that CDNow will live on in some form or another because it has such high brand awareness.

“It may not (go on) with the current management or the current financial relationships … sentiment has turned very quickly on them,” Meierhoefer said. “Their performance as a Web entity is very strong, and that kind of real estate is very valuable. They had a very good holiday season and they have strong traffic numbers in response to promotions. Most sites spend tons and tons of money promoting and they don’t get anything.”

Sinnerich said CDNow’s stall is symptomatic of problems the entire online music retailing industry is encountering.

“Pure play online music retailers are basically seeing the end of days,” he said. “There’s no (profit) margin on the sale, and the companies are not converting customer data and not expanding into higher margin goods. They’re wasting time and money, and I think that the investment community is starting to pick up on that.”

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