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CNET hopes to see green
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February 20, 1998: 5:23 p.m. ET
After disappointing fourth quarter, company focused on profitability
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NEW YORK (CNNfn) - Since founding CNET Inc. in late 1992, Halsey Minor has built an impressive stable of technology-related Web sites and television shows whose target audiences range from novices to experienced developers.
Like many Internet-related companies to spring up over the last few years, CNET went public in 1996 with an offering that valued the company at about $175 million even though it had never turned a profit. Nearly two years later, CNET has yet to earn a profit.
Still, its name is becoming synonymous with technology information. A recent report issued by Web site tracking firm Media Matrix listed CNET as one of the top 15 Web properties. Media Matrix said 15.2 percent of individuals who use the Web at work have visited its flagship site CNET.com at least once in January. Also, 12.2 percent of home Internet users visited the site during the month.
CNET's television shows, which air on the USA Network and the Sci-Fi Channel, are viewed by an estimated 8 million people each week.
The past year was another busy one for the company. In September, CNET launched Snap Online, a competitor to the popular Internet directory Yahoo!. It followed in November with Computers.com, a site targeting people in the market for computers and related equipment. The site features product reviews and links to online shopping sites to enable easy ordering.
(Click here to see a chart of CNET's stock since going public)
Earlier this month, CNET released earnings for its fourth quarter which ended Dec. 31. 1997. The company reported a net loss of $8.7 million, or 62 cents a share, before one-time charges of $2 million. Those results were substantially worse than analysts' expectations of a loss of 42 cents.
CNET Chairman and Chief Executive Officer Halsey Minor said after a frenetic 1997 that included the launch of two new Web sites, the company plans to focus on becoming profitable in 1998.
"1997 was really focused on development and getting our services up and running. The organization has really shifted over the last three or four months away from development.
"Most of the site managers as well as marketing and sales departments will be focusing on maximizing revenue. A lot of it will be built on driving revenue and becoming an [electronic] commerce partner with computer companies," Minor said.
Speaking on the recent earnings disappointment, Minor said the fact that CNET's stock didn't negatively react to the news shows that analysts are confident the dollars are coming.
"When you build [a new site], you have a lot of people working on an effort and not generating revenue. A substantial portion of our loss came from Snap! which has only been around four months. We'll drive all those brands to profitability very quickly. Our goal is for the company to break even by the fourth quarter," he said.
Minor said managers will be focused on making the company more efficient, better managing expenses and driving up revenue.
"I think we're well on the way. We gave Wall Street a heads up at the end of the third quarter that it was a two-quarter transition process and the expense momentum would take time to slow down," he said.
CNET has taken moves to beef up the business side. In early December, CNET named Douglas Woodrum its new chief financial officer and charged him with putting in new cost controls
Lise Buyer, technology analyst at Deutsche Morgan Grenfell, said 1998 is the year CNET will have to prove it can make money.
"This will be a critical and interesting year for them and 1998 will be the year that the income statement will be proven. While their message has been consistent, the challenge is for them to deliver," she said.
Recent partnership announcements with Walt Disney Co.'s ABC and Bloomberg LP are steps in the right direction, Buyer believes. She's also pleased the company has brought on new, fiscally-oriented managers.
"The early signs look good. The burden of proof is now on the company," she said.
Buyer said CNET has proven that Internet viewers are interested in their content. She said CNET's properties are a good advertising buy for anyone wanting to reach technology enthusiasts.
Still, Buyer points out that the patience of investors isn't unlimited and the time has come for CNET to start generating profits.
"The market is endorsing the moves of the last view months. My official rating is a hold which merely reflects my own wish to see the rhetoric translated into performance. I think they will pull it off," she said.
Minor compares the CNET model to that of many successful cable programmers since it has focused on serving a niche.
"It doesn't make sense for us to invest in news, sports and a lot of areas that are highly competitive with well-entrenched brands. We know how hard it is to go against that," he said.
Minor said CNET launched Snap! because he believes there are still opportunities for familiar names to succeed there, especially given the familiar CNET name.
"We fundamentally believe there will be three to five successful companies in that space. All the guys in aggregation are building brands because most of them aren't known and most people aren't on the Web yet. It was logical for us...," he said.
While it's easy to set up a Web site, having the necessary resources to make it succeed is difficult, Minor said.
"Building a brand name on the Web has now gotten unbelievably expensive which is why Microsoft is paying $400 million for Hotmail. If you're in early and have traffic, you can use that to launch new services. But to get in from ground zero is expensive because there's so many players," he said.
--from staff writer Cyrus Afzali
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