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CNet Sets Pace in the Battle for Tech-Savvy Internet Shoppers

E-commerce: Disciplined new CEO, profitability and great timing all work in the firm's favor. Analysts like what they see.

May 22, 2000|JOSEPH MENN | TIMES STAFF WRITER

SAN FRANCISCO — Even after spending $100 million recently on a marketing campaign, San Francisco-based Internet news and commerce company CNet Networks is hardly the household name that Yahoo, America Online and EBay are.

But CNet can claim something that eludes all but a handful of the Internet elites: It's one of only a dozen or so pure Net companies that have reported profits.

CNet runs a network of technology news and shopping Web sites, including CNet.com, News.com and Computers.com, and sends out news via free e-mails to 11 million subscribers.

By focusing on tech news and information, CNet targets a narrower audience than its better-known Web brethren, such as Amazon.com or Priceline.com. CNet visitors can click through more than 100 sorts of color ink-jet printers listed for sale by outside vendors, scan editor and user reviews, then see where they are all available and at what price. It offers tech product auctions, software downloads and technical support questions and answers.

CNet has lured technology advertisers like Compaq and Dell, which are willing to pay more to reach a tech-savvy audience that is more likely to buy on the spot. And CNet's audience is growing: Its users need reams of information as tech products and prices change more rapidly. According to Media Metrix, CNet was the 18th-most-visited Web site network in March, with 10 million unique visitors, up from 7 million in January 1999.

Advertising sales now produce 60% of CNet's revenue. But CNet has begun to broaden its sales by providing raw data on more than 100,000 pieces of hardware, so computer distributors and their customers can compare everything from a Toshiba notebook computer with an Apple desktop PC by price, memory and other factors.

CNet's audience will grow because "technology is seeping into every facet of our daily lives," said WR Hambrecht & Co. analyst Derek Brown, one of 14 analysts who rate CNet stock as "outperform" or better.

CNet is still an Internet stock, though, and its shares have taken a bumpy ride. The company went public in 1996, at a split-adjusted price of $4. It soared to a high of $79.88 last December, then tumbled to below $25 in the April Internet stock sell-off. It closed at $32.38 on Friday.

For 1999, on revenues of $112 million, CNet had an operating loss of $61 million, but it earned $417 million after the sale of Internet investments.

Then in this year's first quarter, CNet reported pro forma profit of $1.5 million on revenue that more than doubled to $45.4 million. Pro forma numbers keep out merger costs, stock-based compensation and certain other expenses whose exclusion is accepted by many Wall Street analysts.

"CNet just had great timing with respect to getting to profitability," said Thomas Weisel Partners analyst Matt Finnick. "The market definitely has turned [to an emphasis on profits], and the company is very astute in seeing that."

CNet's closest competitor is ZD Net, also in San Francisco, which is majority owned by longtime trade magazine publisher Ziff-Davis.

Begun as a Web companion to existing Ziff-Davis publications like PC Week and Macworld, ZD Net has many of the same things CNet has: radio and television programming, comparison shopping for technology products, and technology news on the Web and via e-mail. ZD Net also rates one step higher than CNet on the latest Media Metrix Web ratings.

But Ziff-Davis has lost money since majority-owner Softbank took it public in 1998, and it recently agreed to sell off its magazine and trade show divisions. "Ziff-Davis was stuck in the mud, with too many allegiances," said one veteran of both Ziff-Davis and CNet.

And ZD Net's tracking stock slid to $11.81 on Friday from its March 1999 initial public offering at $19. Ziff-Davis plans to merge with its Internet unit again, and ZD Net will emerge as the surviving stock. Ziff-Davis officials declined to be interviewed for this report.

In this head-to-head battle, Wall Street favors CNet, which now has more than $3 billion in market value, or triple the worth of Ziff-Davis.

"If it keeps going in this direction, I don't see any competition" for CNet, said Alice Hill, who came to CNet as employee No. 50 and served as vice president of development before leaving this year to join online home repair store Cornerhardware.com.

Inside CNet, employees say the company's discipline is likely to intensify under the company's new CEO, former Chief Operating Officer Shelby Bonnie.

Bonnie in March succeeded CNet's founder and now chairman, Halsey Minor.

The quintessential entrepreneur, Minor's initial vision for CNet came to him on a sick day he spent watching cable television at home: Why not have a channel for technology news? Originally planned as TV programming that networks would pay to air, CNet soon morphed into a Web site with nearly incidental television and radio operations.

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