Funnily enough, before writing my bear rebuttal, I spent some time this morning catching up on CNET's (NASDAQ:CNET) News.com. Yes, I certainly do spread the News.com. But I mustn't let emotions interfere with my investment analysis.
It's still hard to believe that CNET needs 2,300-plus employees, given that some of the competition looks a lot leaner --for example, TheStreet.com (NASDAQ:TSCM) with 128 employees and The Knot (NASDAQ:KNOT) with 260. That's almost close to half the headcount at Dow Jones (NYSE:DJ). Essentially, CNET has an odd form: It looks like a Net company on the top line and resembles a crusty media company on the bottom line.
Perhaps the problem is that the co-founder, Shelby Bonnie, is running the company. In other words, firing people may mean getting rid of friends.
As for emerging competition, it is true that Yahoo!'s (NASDAQ:YHOO) offering does not match the depth of CNET. But it is still early, and Yahoo! has shown it can build world-class content properties, such as its finance portal.
Actually, I think CNET is taking this threat seriously. Maybe this is why the company is diversifying into other categories.
But such moves can be troublesome. Look at the mighty Google (NASDAQ:GOOG), with its huge brand and user base. Basically, it is having trouble with a variety of off-the-core properties, such as Google Finance and even its video offering. Like most companies, it continues to generate growth from its core business. True, the word "focus" is overused, but then again, there is a good reason that it is.
As for the options backdating issue . valuing a company is often more art than science, but without the latest financials, it is more of an art, since we do not know how costs are tracking. In fact, this is a new thing on Wall Street. Analysts who follow the stock -- as well as big-time institutional investors -- have no choice but to make educated guesses. (That is why they get the big bucks.)
But how good are analysts at making those guesses? Keep in mind that companies continually miss estimates -- in terms of underperforming or overperforming. And how long will these companies go without reporting their bottom-line numbers?
What I see at CNET are lots of potential risks: implications of the options backdating; increased competition; moves into unrelated categories; a bloated cost structure. Just look at the company's stock price over the past two years.
Wall Street wants more than revenue growth. It wants some old-fashioned discipline.
Think you're done with the Duel? You're not! Go back and read the other three arguments, and then vote for a winner.
The Knot is a Motley Fool Rule Breakerspick. Yahoo! is aMotley Fool Stock Advisorrecommendation. You can try these or any of our newsletter services free for 30 days.
Fool contributor Tom Taulli does not own shares of companies mentioned in this article. The Motley Fool has a full disclosure policy.
