CDNow Q1 Loss Narrows

CDNow, Inc. (Nasdaq: CDNW) reported Tuesday that its first quarter loss narrowed from a year earlier, as the company added 440,000 new customers and revenue nearly doubled.

Recognizing that its shares are trading 90 percent below their all-time high, the online music retailer also unveiled a new operating plan designed to cut expenses by more than $12 million (US$) a quarter.

The company said it lost $37.8 million, or $1.23 a share, in the quarter ended March 31st, as compared with a loss of $38.2 million, or $1.28, in the year-earlier quarter. Revenue rose 99 percent to $43.6 million. Analysts were looking for the company to lose between 88 cents and $1.14 a share, according to Zacks Investment Research.

Still Seeking a Partner

“We continue to aggressively seek a merger partner or investor,” said President and Chief Executive Officer Jason Olim. “Moving forward, we have recalibrated our business to conserve resources and allow us to move more quickly to profitability.”

The company said its new operating plan will reduce its cash-burn rate and cut customer acquisition costs in half.

CDNow’s struggles began in earnest after a planned merger with Columbia House, the mail order music company owned jointly by Sony Corp. and Time Warner Inc., fell through two months ago. After the merger plan was canceled, auditors expressed doubt about the company’s long term prospects, and Allen & Co. was hired to look for a buyer.

CDNow shares opened at 3 7/8 Wednesday morning, far below their 52-week high of 23 1/4.

Customers, Advertisers Still Joining

Despite its financial woes, CDNow continues to add customers and advertisers. In March, research firm PCData found that CDNow was the largest e-tailer on the Internet, surpassing Amazon.com in terms of home-based customers.

Advertising sales, which totaled $3 million during the latest quarter, were also up from $897,000 in the year-earlier period. New advertisers included big name companies, such as Dell Computer Corp., Bid.com and Victoria’s Secret. According to the company, a custom CD promotion with Pizza Hut helped boost brand awareness.

CDNow said the new operating plan is intended to cut costs by focusing on the most efficient ways of getting new customers, seeking sponsorships and generating advertising sales. The company will also offer existing customers incentives for referrals of new customers.

The company expects the plan to result in a drop in second and third quarter revenue and income from first quarter levels, and that the rate of customer growth will also slow. Revenue, however, “won’t fall significantly,” CDNow said.