Roxio continues to lose money as it invests in its Napster music download service, prompting lackluster comments from analysts.

The company announced its third quarter fiscal results Wednesday night. These declare the company's net revenues to have declined year-on-year, from $26.4 million in Q3 2003 to $18.8 million in Q3 2004. That quarter ended December 31.

The company reported a net third quarter 2004 loss of $25.6 million compared to a loss of $9.2 million in the year-ago quarter. The company had approximately 27.9 million shares issued in the third quarter.
Despite losses, Roxio CEO Chris Gorog remained upbeat: "In its first few months of operations Napster has firmly established itself as one of the top two online music services in the country and was named the 'Best Online Music Store' by PC Magazine," he said.

"Napster's sales of downloads and subscriptions continue to grow and the brand continues to prove itself as a unique and very powerful asset. The company is well-positioned to leverage Napster's scalable music delivery platform into international markets later this year. It's clear the online music business is gaining substantial traction," he added.

In its first two months Roxio's Napster division saw $3.6 in revenues, presumably including subscriptions, music sales and any profit-shares that may have accrued through sales of the Napster/Samsung digital music player product. pretax loss for this division was $15.1 million.

The company claimed its software sales had exceeded expectations in the quarter. Revenues from its digital media software division were $15.2 million for a pretax loss of $10.1 million, including $4.4 million in restructuring charges.

Roxio CFO Nand Gangwani said: "Our efforts to consolidate the organization towards profitability are proceeding on plan", predicting fourth quarter revenues of $25 million for software and $5 million for Napster.

B. Riley analyst Justin Cable believe Roxio faces some challenges, he told Reuters: "They have to focus on getting to break-even and they face a lot competition in both their digital media software and online music segments," he said.

Roth Capital Partners analyst Michael Kim maintained his 'Sell' rating on Roxio because of those challenges, he told CBS MarketWatch. His target price for Roxio is $4.

Roxio shares currently stand at $4.15 – toward the lower end of its 52-week range ( $3.78-$11.47).