Activist investors argue that CNET Networks (Nasdaq: CNET) isn't doing a good enough job in monetizing its pages. Let's see whether Yahoo! (Nasdaq: YHOO) can lend a hand.
The two companies have signed a broad three-year deal. As part of this multifaceted arrangement, Yahoo! will showcase CNET's content prominently on its pages, while CNET's Download.com will promote the incorporation of the Yahoo! toolbar within its developer base. Perhaps more importantly, the companies will create a platform to cross-sell advertising across both CNET and Yahoo!, broadening their sponsor pools while filling undersold gaps.
CNET expects the deal, which begins in July, to generate roughly $100 million in high-margin incremental revenue for it, mostly in the final two years of the deal.
The promising partnership couldn't have come at a better time, announced just minutes before CNET reported yet another round of uninspiring quarterly numbers (read about the company's previous quarter here). Revenue inched just 3% higher to $91.4 million during the first quarter, the result of 26% growth in international sales offsetting a head-scratching 3% decline in the U.S.
Traffic certainly isn't a problem. The company is attracting 161 million unique monthly visitors and serving up an average of 90 million daily page views. CNet based its online ad shortcomings on volume, not pricing. That definitely bodes well for the Yahoo! deal, if it helps fill up the inventory channels.
Earnings clocked in at a loss of $0.04 a share, narrower than last year's $0.06-a-share loss and in line with expectations.
The Yahoo! deal doesn't mean that CNET is giving Google (Nasdaq: GOOG) the heave-ho. CNET remains pleased with Google's paid-search product, which accounted for roughly 12% of its revenue in the first quarter. However, Yahoo!'s strengths in display advertising will be welcome fits in many of Google's entertainment properties where graphical brand marketing is a logical sell.
Things should get better for CNET. For the year, the company is looking for a profit of $0.03 to $0.04 a share on an 8% to 13% boost in the top line. In other words, though revenue growth was anemic in the first quarter, it should pick up throughout the year, with profitability around the corner.
This isn't a great time to be a Web content company. CNET joins others like Internet Brands (Nasdaq: INET), Local.com (Nasdaq: LOCM), and Answers.com (Nasdaq: ANSW) whose stock is trading in the single digits.
CNET may not crawl out of the single digits right away, but the ingredients are in place for significant improvement in 2009 and beyond. The company has often leaned on scapegoats in pushing out results. Two years ago, it blamed the rollout delays of Windows Vista and the PS3. Now it's pointing fingers at the Hollywood writers' strike and the delay of Grand Theft Auto IV. However, now that the Yahoo! deal is in place and the company has taken action to trim its corporate overhead, the catalysts are there. We simply need earnings and market sentiment to follow.
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