CNET Changes Its Buy-and-Hold Strategy

CNET Networks (Nasdaq: CNET  ) isn't an archetypal trader, but that's a fitting pose for the company considering the third-quarter results it posted last night. Selling off a puzzle piece, hoping that investors buy into a more focused online media company?

It's worth a shot. CNET was starting to get boring and complacent. Selling off Webshots -- a photo-sharing site that was a drag on performance -- sends out a powerful message: CNET is willing to sell properties just as aggressively as it snaps them up.

The quarter itself was ho-hum. Revenue rose 7% to $99.5 million. Adjusting to include only continuing operations, revenue increased 9%. Adjusted net income of $0.04 a share was less than last year's $0.06 showing, but better than the $0.02 per share that Wall Street expected. (Take a look at last quarter's results as well.)

The growth -- or lack thereof -- buries the favorable metrics. CNET's collection of websites is substantial, attracting 141 million unique monthly visitors during the quarter. The company served up an average of 91 million daily page views, a roughly 20% improvement over last year's performance.

Webshots says cheese
In a move that is probably long overdue, CNET is selling Webshots to American Greetings (NYSE: AM  ) in a $45 million transaction. The photo-sharing website knew how to draw a crowd. Storing more than 400 million user-submitted digital snapshots, Webshots attracted 7 million unique monthly visitors. The problem is that CNET has struggled to monetize the site. Traffic has also been suffering over the past two years, with folks flocking to hipper photo-sharing sites like News Corp.'s (NYSE: NWS  ) Photobucket and Yahoo!'s (Nasdaq: YHOO  ) Flickr.

"It's too big to ditch," I wrote about Webshots earlier this month. "It's too lethargic to sell off. Fixing it really is the only solution."

Well, I guess I was wrong on all counts. CNET won't have to fix Webshots now that it was able to sell it off to a company with easier means to monetize the site. How much longer before American Greetings rolls out online photo greeting cards, or offers the opportunity to purchase them by the dozen?

Are you paying attention, Shutterfly (Nasdaq: SFLY  ) ? You may be looking at a new competitor.

Back to CNET
I was getting tired of hearing the term "ex-Webshots" during CNET conference calls. It was necessary when traffic began faltering at Webshots, because the now-sold site was delivering a lumpy sum of poorly monetized pages.

Cashing out on Webshots won't fix the company overnight. Even without Webshots, the company expects revenue from continuing businesses to climb by 8% to 13% during the current quarter.

That's the kind of uptick that is unlikely to impress growth-stock investors. The key will be if a more focused CNET can drive healthier margins, leading to fatter bottom-line gains.

However, let's not belittle the message sent with the sale of Webshots. This doesn't mean that the company will sell MP3.com to Apple (Nasdaq: AAPL  ) after Steve Jobs succeeds in eradicating song file copy protection, or Gamespot to IGN parent News Corp. to make the most in the heated console wars. But if the company finds willing bidders for some of its lesser, underperforming properties, CNET may be able to do some pretty neat things with a razor.

Another catalyst is the international angle of the CNET story. The company has spent the past few years acquiring shares in China and Europe. International revenue now accounts for 23% of the company's top line. With Web adoption rates growing faster overseas -- especially in China -- this should become a more important segment in the future.

No, CNET won't be the next Alibaba.com or Sohu.com (Nasdaq: SOHU  ) , but the company was shrewd enough to make attractive purchases in China before buyers flocked to the world's most populous nation.

CNET has a great story to tell. Operating stagnancy has always gotten in the way of telling it. However, now that the company is a willing trader, let's see if it can trade fiscal dormancy for a cozier storytelling chair.

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  • Report this Comment On January 09, 2009, at 3:24 PM, davidkubica1 wrote:

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