06:50am EDT 22-Apr-99 Salomon Smith Barney (BAKER (415) 951-1665) CNET
CNET: Profits and Expansion of Scope Are Only Begining-Part 2
--OPINION:------------------------------------------------------------------
deducting a a 60% tax rate and applying a 50 earnings multiple, we arrive
at a future value of $9 billion. Discounting back from the year 2003 at
20% per year as a required rate of return, we arrive at a $5.7 billion
market value for C|Net a year from now. Dividing by 38 million shares
outstanding, we arrive at a $150 per share price target for C|Net.
+ WHERE THE COMPANY GOES FROM HERE +
C|Net has demonstrated a currently unique ability to make the Online
Media content-driven business model work. Outside of Yahoo!, no other
Online Media firm has achieved the operating margin levels that C|Net has
to date. Furthermore, among content-oriented sites, C|Net's profitable
operating model is unique today. A combination of management focus; the
suitability, size and growth of the computer- and technololgy-related
fields of interest on the Internet; and the company's adherence to the
media business model in the face of sometimes intense pressure to pursue
larger but less profitable e-commerce sales has enabled C|Net to do what
no other Online Media company has so far. We believe that C|Net's
established, working and profitable business model will now provide the
platform for expansion in to wider and deeper markets and services. The
company will add services to serve the used/refurbished computer market
in 2Q99, as well as begin an expansion into consumer electronics. Beyond
these opportunities, which can add to revenue while layering in few
additional costs, C|Net will likely also attack the local technology
merchant opportunity as well as the corporate marketplace in more focused
fashion later in 1999 and into 2000. The company has recently added
major new advertisers in the form of Dell, Gateway, Compaq and Acer to
its client roster as preferred marketers, and we anticipate similar
high-profile advertising and marketing agreements in other technology
product categories in the coming months. In addition to developing a
large presence with software and computer peripheral companies, C|Net may
ultimately also find opportunities in the wireless, consumer electronics
and related markets. At bottom, the company has only begun to apply its
proven and profitable content-driven media model to the vast categories
of spending and interest before it. We believe C|Net should be a core
holding for investors seeking high-quality long-term investment
opportunities in the Online Media sector.
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