The growth of wireless gaming in the U.S. promises to unleash whole new and exciting ways of wasting time. Thanks to the technology, a cell phone and wireless service are all that folks need to start indulging in digital sports, racing, and adventure anytime, anywhere. But where is an eager gamer to turn for information on the best wireless games available?
With its acquisition of WGR Media Inc., CNET Networks (NASDAQ:CNET) is evidently hoping to become the Web property of choice for those seeking the scoop on exciting wireless games. Although this sort of thing isn't likely to change the world, the business angle should not be dismissed.
CNET projects that mobile gaming, which already is big in parts of Europe and Japan, will grow in the U.S. to $1.9 billion in 2006 v. $520 million in 2003. All the major U.S. wireless service providers, including Verizon (NYSE:VZ), Nextel (NASDAQ:NXTL), and Sprint PCS (NYSE:PCS), offer game services over their networks, and handset companies such as Nokia (NYSE:NOK) and Ericsson (NASDAQ:ERICY) integrate gaming capabilities into their devices.
CNET plans to integrate the acquisition into its GameSpot property, which provides information on conventional video games. The deal fits in with its pattern of selective buys over the years, most notably its purchase of MP3.com, as the firm continues to build on its standing as a leader in content for technophiles.
In this case, though, there is a chance CNET is missing out on opportunity by integrating WGR into GameSpot. While interest in traditional video games is concentrated among younger customers and hard-core enthusiasts, wireless gaming has the potential to appeal to more, well, mature users. It's unlikely that interest in the area will extend to the geriatric set, but given the millions of wireless phones out there, its reasonable to assume many people outside GameSpot's core 18-to-34-year-old male market might want to find out more about wireless games.
Management didn't release the deal's details, except to say that it was an all-cash transaction. Investors greeted the purchase with enthusiasm yesterday, sending the stock up over 7%. CNET has been on somewhat of a roll lately, having reported in January that it achieved positive earnings in the fourth quarter for the first time since 1999.
Investors should be careful not to get ahead of themselves, though. The tech content king is still saddled with $119 million in long-term debt, and revenue for 2003, while up 7.5% from 2002, was still down 18% versus 2001. CNET's valuation is comparable to its nearest public competitor, Jupitermedia (NASDAQ:JUPM), based on trailing revenue. Still, CNET has a narrower gross margin, and at 239 times earnings Jupitermedia is arguably overvalued. With just one profitable quarter in recent memory, CNET has yet to prove it's worth its price.
Fool contributor Brian Gorman is a freelance writer in Chicago, Ill. He does not own shares of any companies mentioned in this article.
