Leadin US business information group Fortune, has claimed that shares in CNET Networks who operate the ZDNet and CNet web sites in Australia, have tumbled and that problems for the group including stock-option pricing irregularities and abrupt executive departure have done little to generate investor enthusiasm for the Company.
Another problem for the American owned CNet is that during the past 12 months page views on its Web properties declined by -13% over the previous year. ( Specialist CE technology web sites like SmartHouse and SmartHouse News have grown in excess of 100%).
In both Australia and the US CNet have witnessed a high turn over of staff as the Company struggles to deliver both visitors to it’s web sites and profits. Back in April, the company warned that a first-half slowdown was hitting the firm due to “transitions occurring simultaneously in the PC and video game industries this year.” In early 2006, the Microsoft Vista operating system as well as the SonyPS3 and Nintendo Wii were all still on the distant horizon, and consequently PC and video game companies slowed down their product releases, giving consumers less of a reason to visit CNET’s tech-focused sites.
Fortune claim that despite these big tech product releases now coming to fruition business has not improved for CNET, and other problems have emerged.
Soon after its Q2 report, CNET was dragged into the stock-options backdating scandals that have impacted many companies this year, especially in the technology market. CNET, however, has incurred more damage than most. CNET’s options backdating transgressions reach back to the company’s 1996 IPO, and last month the investigation led to the resignation of CNET’s co-founder and CEO Shelby Bonnie. The company’s general counsel, its human relations chief and a former CFO were also felled by the investigation.
That same day, the company announced that Q3 revenue came up short of expectations due to those same technology-industry trends cited earlier in the year. When CNET officially announced its third-quarter revenues, it also noted that page views on its Web properties had declined by -13% since the previous year.
Now that the dust has settled, Fortune question as to whether CNET will be able to turn things around, and, if so, is this an opportunity to get in near the bottom? Undoubtedly, the CNET brand is still worth something say Fortune , and any investment in the company right now would have to hinge on that fact. CNET and other online media properties are considered possible acquisition targets for larger media companies, as was the case when Dow Jones acquired MarketWatch for $528 million in early 2005. If anything, the turmoil at CNET makes an acquisition even more likely because one of the company’s founders is now gone and the stock price is relatively low.
Still, the likelihood of a buyout shouldn’t be overstated. The MarketWatch acquisition was nearly two years ago, and there hasn’t been a comparable deal since, as many big media firms are hardly in a position to go on a buying spree right now. Acquisition potential aside, however, CNET has other problems to deal with.
Its position in the market isn’t particularly defensible. There are dozens of other tech review sites out there, and many tech blogs have become hugely popular, eating into CNET’s page views. Internet ad spending, meanwhile, continues to increase, but behind the exuberant headlines is a possible slowdown in growth.
Fortune claim that based on 2007 estimates, CNET is trading with a price-earnings multiple close to 38–not outrageous, but other Internet content companies offer a better value, especially when one considers CNET’s lower five-year projected annual growth rate of 20%. In addition, nearly ten years of earnings restatements will take a long time to sort out.