Friday, July 27, 2007

CNET Networks (NASDAQ:CNET): Color on quarter

Couple of firms comment on CNET Networks (NASDAQ:CNET) after the co released its Q2 results and guidance last night:

- RBC Capital notes they remain neutral on CNET, as they think the stock remains range-bound
between $7-$10. The company is in a transition year in 2007. It has a similar audience attrition problem as Yahoo - its core base is declining and it is not participating in any of the web 2.0 growth trends (user generated content and social networking). Core PV growth (ex Webshots) has turned negative at CNET for the first time this quarter, and the company probably won't have an easy y/y comp until 1Q08. CNET is starting to see its sell through rate improvement tap out, and growth deceleration is setting in. Advertisers are resistant to price hikes, as they generally have more options on how to deploy budgets than in previous years and can target the same CNET audience on other networks for a lower CPM. The company may look to make acquisitions to re-invigorate growth, and the firm would wait for related pull-backs before getting more aggressive. Target to $9 from $10. Firm notes they would get more agressive below $7.50.

- JMP Securities is taking their tgt to $7 from $8 saying weakness in the quarter was attributable to weak advertising trends for PC manufacturers, as well as a faster decline in Webshots revenue.
Both the advertising spending environment for premium inventory and the organic growth of CNet's core sites are facing challenges. After the first quarter's results we reiterated our concern about the weakness in PC manufacturer advertising budgets. According to their research, PC manufacturers are not only pulling back their total ad spend, but also reducing their online allocation as a percent of the total spend due to a number of challenges within the PC industry. As management indicated on its conference call, growth in PC sales has not been stellar this year even with the Vista upgrade cycle.

In terms of the broader environment, the firm believes that CNet is also facing the same negative secular trend that Yahoo! mentioned on its earnings call, which is the explosion in user generated content that is providing advertisers more alternatives, even if the available inventory was not as premium in quality.

Notablecalls: CNET missed on almost every metric. I think it's an increasingly tough environment out there (confirmed by YHOO and TSCM's lousy subs numbers) for original content providers that rely on advertising to drive revenue.

I think CNET's best hope here is to get bought by a larger player. But who would want to buy CNET around current valuation?

Anyway, I think that if you can get some stock short tad below the $8 level, you'll make money shorting today.

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