07:58am EDT 22-Apr-99 Hambrecht & Quist (Dan Rimer) CNET CPQ DELL GTW VIGN EGGS
CNET has Another Blow Out Quarter. Reiterating BUY.
**** Hambrecht & Quist **** Hambrecht & Quist **** Hambrecht & Quist ****
Company: CNET, Inc.
Price: 119.75
Recommendation: Buy
Notes: a, b
Analyst: Dan Rimer 415-439-3425
Date: 4/22/99
CNET has Another Blow Out Quarter. Reiterating BUY.
CNET announced strong March quarter results of $19.6 million in revenue and
$0.09 EPS, significantly exceeding our estimates of $17.3 million in revenue
and $0.03 EPS. We believe that this is the second quarter that CNET has
really demonstrated the strength of its business model by continuing to
execute on its strategy of bringing together buyers and sellers of technology
products in an efficient, real-time marketplace and demonstrating the ability
to drive transactions to the members of its advertising and lead generation
programs. We reiterate our BUY reccomendation.
1998 A 1999 E 2000 E
Q1 REVS $9.8 $19.6 $na
Q2 REVS 13.1 21.0 na
Q3 REVS 14.4 23.5 na
Q4 REVS 19.2 28.9 na
FY EPS (0.14) 0.38 na
FY REVS (M) 56.4 93.0 na
CY EPS (0.14) 0.38 na
CY P/E nm nm na
FY Ends Dec Current Price $119.75
52-Week Range $15-160 Market Cap(M) $4,548
Shares Out(000) 37,977 Book Value $7.36
Net Cash/Share $5.64
*Summary and Recommendation: CNET announced strong March quarter results
of $19.6 million in revenue and $0.09 EPS, significantly exceeding our
estimates of $17.3 million in revenue and $0.03 EPS, and the Street's
estimate of $0.03 EPS. CNET showed strong revenue growth and profitability,
with qtr/qtr revenue growth (versus usual seasonality) and net income of $3.4
million. CNET continues to execute on the strategy we outlined last quarter,
namely bringing together buyers and sellers of technology products in an
efficient, real-time marketplace. We believe CNET has successfully
demonstrated its ability to drive transactions to the members of its
advertising and lead generation programs. CNET continues to improve upon the
retention of its seller partners by offering them attractive advertising and
lead generation packages and we expect them to launch new buyer services (such
as auction) and develop other "premier" marketing programs with sellers in a
wide array of product areas resulting in stronger and more consistent revenue
streams while increasing the stickiness of the marketplace it has created. As
a result, we have raised our CY1999 revenue estimates from $87.3 million to
$93.0 million and our EPS estimates from $0.32 to $0.38. We reiterate our BUY
recommendation.
March Quarter Highlights: In the March quarter CNET's page views grew to
9.5 million average daily page views, up 16% from 8.2 million in the previous
quarter. We view the increase in page views primarily due to a
rationalization and optimization of the network. Additionally, CNET
significantly increased its average leads per day to 104,000 in the month of
March up 16% from 90,000 leads in December. During the quarter CNET also
added approximately 13 vendors, bringing the total number of vendors
participating in CNET's lead generation program to approximately 83. We did
not see as much seasonality in the March quarter as anticipated in our model
due to increased demand for advertising inventory on the CNET network and the
successful execution of an effort to create attractive advertising and lead
generation programs for its sellers.
*Premier Merchant Program. CNET continues to successfully demonstrate
its ability to drive transactions to the members of its Premier Merchant
Program, which enables members to increase brand awareness and generate sales
leads among CNET's large audience of technology product and service buyers.
On April 1, 1999 CNET renewed contracts with 83 of 85 of its vendors despite
the fact that prices were raised for all participants in the program. In
addition, CNET expanded its premier partner group, which included Egghead.com,
NECX Direct and HardwareStreet.com, to include ClubComputer.com and Virtual
Technology Corporation.
*Premier PC Manufacturers Advertising Program. We view this program as
one of many more to come in various areas of vendors associated with
technology. Modeled on the Premier Merchant Program, CNET recently announced
a premier program to offer PC manufacturers the ability to more efficiently
reach consumers and increase brand awareness. CNET has entered into strategic
marketing relationships with Compaq, Dell, Gateway and Acer to participate in
this program. CNET plans to roll out similar premier advertising programs
across additional product/service categories throughout 1999 and 2000, paving
the way for more premier partner revenue streams.
In addition, CNET has made several strategic acquisitions in the most recent
quarter and plans to launch new services in the upcoming quarter to further
expand its service offerings for both buyers and sellers across all channels
and products categories. We view these acquisitions as primarily service
enhancing but expect others to be pre-emptive purchases:
*ShopBuilder. Following on its acquisition of NetVentures in February
1999, CNET plans to launch its CNET/ShopBuilder service in the second quarter
of 1999 which will allow manufacturers and resellers to quickly and
efficiently set up e-commerce storefronts on the CNET network as well as
market their products to the CNET audience for an additional fee.
*AuctionGate.com. Capitalizing on users desire to bid and auction
products, CNET will incorporate AuctionGate.com into its network of services
to enable users to participate in person-to-person and business-to-business
auctions of used, refurbished and surplus computer products. We expect CNET
will launch its auction service in the second quarter of 1999.
Stock Split: CNET announced a 2-for-1 stock split in the form of a stock
dividend payable May 28, 1999 to record holders of common stock on May 10,
1999, pending approval by stockholders at the May 26, 1999 annual meeting.
Conclusion: We view CNET's March quarter as the second quarter that CNET
has really demonstrated the strength of its business model. The company
leveraged its early mover advantage in the technology content arena to create
a compelling and comprehensive marketplace for buyers and sellers of
technology on the Internet. In addition, the company has been very inventive
in demonstrating and proving the value of its network to industry product
vendors and advertisers. We believe that the company's momentum will feed
upon itself and will continue to make it more difficult for others to compete.
Finally, the company has done a great job on the investment side of the
equation. While CNET has not historically received credit for its
investments, clearly part of the success story of its March quarter was buried
in its "other income" line. CNET's investments in Vignette (VIGN, BUY,
$83.50), BuyDirect as well as Snap have demonstrated both the savvy of the
management team and have provided the company with a very healthy balance
sheet to leverage going forward. We reiterate our BUY rating on the stock.
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