Standard & Poor's (S&P's) has given provider of audio books Audible its highest investment rating.
Shoppers can purchase "books" online from Audible or from Apple's iTunes Music Store. Audible also has distribution relationships with Amazon, Best Buy and Circuit City.
S&P's are confident that there is a huge market for audio-books. The report notes that the Audio Publishers Association estimates the size of the audio-book market to be $800 million.
The analysts calculate that based on Audible's 2004 net revenues of $34.4 million, it had captured just 1.3 per cent of this segment and has much room for growth, they also predict: "We think Audible's market opportunity is considerably larger than just audio books".
Audible is already compatible with more than a hundred devices, including Apple's iPods. S&P's also notes that the company has been readying Audible Wireless, which will enable its content to be downloaded and accessed via wireless phones.
The analyst also notes Audible's recently announced exclusive partnership with XM Satellite Radio, "which we believe eventually will enable it to pursue what we consider to be the very lucrative automotive audio market".
"Several competitive factors will enable Audible to maintain and increase its share of the spoken-word audio market," says S&P's. "The company possesses significant technology advantages, in our view. It pioneered the segment and delivers appealing user functionality, much of which is supported by proprietary intellectual property."
S&P's is impressed by Audible's mass of patents. "Our research indicates Audible has 10 patents related to digital audio. Interestingly, we believe it holds more patents than online stalwarts Amazon, eBay and as many as Google".
"We believe Audible is well-positioned to capitalize on a substantial market opportunity and has notable and durable competitive advantages, a positive financial outlook, improving corporate-governance practices, favourable relative earnings quality, and an attractive valuation," is the conclusion.