Exhibit 99.2
IMMEDIATE RELEASE
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Company Contact Investor Relations Media Relations
Joel Sussman, VP/CFO Carl Hymans Curtis Hougland
CDnow, Inc. G.S. Schwartz & Co. Middleberg & Assoc.
215-517-7325 212-725-4500 212-888-6610
CDNOW ANNOUNCES RECORD THIRD QUARTER
AND NINE MONTHS RESULTS
--THIRD QUARTER REVENUES INCREASE 255%--
JENKINTOWN, PA., October 23,1998 -- CDnow, Inc., (NASDAQ: CDNW), the Internet's
number one music retailer, today announced financial results for the third
quarter and nine months ended September 30, 1998.
Revenue for the third quarter ended September 30, 1999 was $13.9 million,
representing a 255% increase from $3.9 million for the third quarter ended
September 30, 1997. On a quarter to quarter basis, revenues in the third
quarter of 1999 increased by 20% over revenues of $11.6 million for the second
quarter of 1998. Approximately 59% of revenues in the third quarter came from
existing customers.
As of the end of the third quarter, a total of 738,000 customers bad
purchased from CDnow since inception. Traffic to the CDnow store during the
third quarter increased by 16% when compared to the second quarter of 1998.
Average daily visits in the month of September exceeded 215,000, an increase of
24% compared to June.
Operating expenses increased to $16.4 million for the third quarter of 1998
compared to $3.5 million in the comparable period last year and $11.9 million in
the second quarter of 1998.
The Company's net loss for the third quarter of 1998 was $12.9 million, or
$0.74 per share, compared to a net loss of $2.6 million, or $0.36 per share, for
the third quarter of 1997. On a quarter-to-quarter basis, the Company's net loss
for the third quarter compares to a loss in the first and second quarters of
1998 of $0.78 per share and $0.55 per share, respectively.
Revenue for the nine months ended September 30, 1998 rose 276% to $35.5
million from $9.5 million for the nine months ended September 30, 1997.
Operating expenses increased to $39.2 million for the first nine months of
1998 compared to $6.3 million in the comparable period last year.
The Company's net loss for the nine months ended September 30, 1998 was
$30.8 million, or $2.10 per share, compared to a net loss of $4.1 million, or
$0.56 per share, for the nine months ended September 30, 1998.
During the quarter ended September 30, 1998, the Company changed its method
for classifying credit card processing fees from a cost of sales to a Sales &
Marketing expense to conform to industry standards. If credit card fees were
included in cost of sales, gross profit margins would have been 18.5% instead of
20.9% as reported for the three months ended September 30, 1998 and 16.9%
instead of 19.6% as reported for the nine months ended September 30, 1998.
Prior periods have also been restated to reflect this change.
Jason Olim, CDnow's President and CEO, said, "We are truly gratified by
what we achieved in this quarter, certainly our most competitive ever. Revenue
continued to grow 20% over the prior quarter, with both a record number of new
customers and strong customer retention, as exhibited by the 59% of our revenues
that came from repeat sales to existing customers our international sales
continued to grow well, and included the launch of our
European distribution capability and global marketing. CDnow achieved double-
digit brand recognition among internet users, was rated the fourth most
recognized e-commerce brand, and founded a network of leading online specialty
retailers scheduled to launch in November. Most importantly, we maintained our
disciplined business model, achieving our planned gross profit and bettering
gross margin and net loss expectations."
The third quarter of 1998 was CDnow's most innovative quarter ever with the
launch of announcement of:
. MY CDnow: personalization features that enable consumers to create
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their own music store.
. Fast Forward Rewards: a proprietary frequent buyer rewards program
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with points customers can redeem for music and merchandise.
. Improved Search Capabilities: utilizing Verity, Inc.'s K2 search
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technology.
. Cosmic Credit Program: our affiliate network program exceeded
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100,000 members and became our largest single source for new
customers,
. Online Shopping Network: scheduled to launch in November, it will
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enable consumers to find quality goods and services from the
Internet's best-known and trusted brands: CDnow, Cyberian Outpost,
eToys, and Reel.com.
CDnow's store, brand and customer service received high ratings in the third
quarter:
. EMarketer. a New York-based consulting firm and authority on business
online, ranked CDnow the number one music store online.
. BizRate, the Internet leader in monitoring online customer
satisfaction, rated CDnow a Buyers' Best Winner for both product
selection and customer support.
. USA TODAY reported that CDnow was the fourth most recognized
electronic, commerce brand in a recent survey of internet users.
Earlier today, N2K Inc. (Nasdaq:NTKI) and CDnow Inc. (Nasdaq:CDNW) jointly
announced the signing of a definitive merger agreement.
CDnow. Inc. (cdnow.com) is the Internet's number one music store. CDnow
offers more than 300,000 music related items - ten times the size of the average
music store. Founded in 1994 by twin brothers Jason and Matthew Olim, CDnow is
building a better music store, through intelligent album recommendations, custom
CDs, music samples, a vast library of reviews and features from top music
writers and exclusive editorial content from Rolling Stone Network MTV/VH1 and
CMJ New Music Monthly. CDnow is the premier online music Store on Yahoo!,
Lycos, Lycos-Bertelsmann, Webcrawler, Tripod, GeoCities, MTV/VH1, Rolling Stone
Network and CBS.com.
This release contains statements relating to future results of the Company
(including certain projections and business trends) that a "forward-looking
statements as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties, including but not limited to, changes in political and
economic conditions, for and market acceptance of new and existing products, as
well as other risks and uncertainties detailed from time to time in the filings
of the Company with the Securities and Exchange Commission.
(TABLES FOLLOW)
CDNOW, INC.
UNAUDITED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
September 30 September 30
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1998 1997 1998 1997
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Net Sales 13,879,775 3,906,661 35,503,805 9,452,864
Cost of Sales 10,980,974 3,059,849 28,549,562 7,333,069
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Gross profit 2,898,801 846.812 6,954.243 2,119,795
Operating Expenses
Operating and Development 2,390,004 631,727 5,155,718 1,444,011
Sales and Marketing 12,938,039 2,341,655 31,293,668 3,603,238
General and Administrative 1,047,175 522,911 2,781,334 1,266,296
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Operating Loss (13,476,417) (2,649,481) (32,276,477) (4,193,750)
Interest Income 787,183 92,655 2,015,234 94,045
Interest Expense 68,160 23,156 563,074 29,961
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Net Loss (12,757,394) (2,579,982) (30,824,317) (4,129,666)
Accretion of Preferred Stock to -- (263,748) (115,542) (263,748)
Redemption Value
Net Loss Applicable to (12,757,394) (2,843,730) (30,939,859) (4,393,414)
Common Shareholders
Net Loss Per Common Share (.74) (.36) (2.10) (.56)
Weighted Average Number of 17,141,221 7,845,684 14,764,870 7,845,684
Common Shares Outstanding
CDNOW, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 DECEMBER 31, 1997
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(unaudited)
CURRENT ASSETS:
Cash and equivalents $ 59,563,026 $ 10,686,001
Short-term investments -- 1,003,045
Accounts receivable 811,175 324,411
Prepared expenses and other 9,170,725 2,457,958
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Total current assets 69,544,926 $ 14,471,415
PROPERTY AND EQUIPMENT, net 4,129,299 1,884,296
OTHER ASSETS 3,897,161 92,714
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$ 77,571,386 $ 16,448,425
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- $ 5,575,288
Current portion of long term debt 635,160 361,562
Accounts payable 9,324,304 8,981,430
Accrued expenses 2,821,178 579,413
Other current liabilities 100,295 191,727
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Total current liabilities 12,880,937 15,689,420
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LONG TERM DEBT 1,130,484 962,144
DEFERRED RENT LIABILITY 160,990 56,717
REDEEMABLE SERIES A AND B CONVERTIBLE
PREFERRED STOCK 9,492,594
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, no par value 101,482,736 579,549
Additional paid-in capital 4,325,817 1,325,817
Deferred compensation (246,679) (434,776)
Accumulated deficit (42,162,899) (11,223,040)
Total Shareholders equity (deficit) 63,398,975 (9,752,450)
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$ 77,571,386 $ 16,448,425
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