eMailbag Monday: CMGI, barnesandnoble.com IPO, ZDnet
By Steve Harmon
Senior Investment Analyst
internet.com
"Where Wall Street Meets The Web"
First reader up this week writes:
Gee ZD
"Steve, let me start off by saying how much I enjoy your analysis on Internet stocks. I'm interested in your thoughts on Ziff Davis (NYSE:ZD - news) and ZDNet (NYSE:ZDZ - news) . I have been holding ZD since it IPO'd last year and have seen my share of ups and downs.
It's a great company in my opinion, but it doesn't seem to hold interest of the market. When ZDZ was "spun-off" as a tracking stock last March, ZD was trading as high as $29/shr.
Although CNET does have certain advantages over ZDNet, I believe ZDNet is a quality site. At a market cap of $1.75 billion, it is valued at only 1/3 of CNET. Furthermore, ZD's market cap is only $1.47 billion when it owns 86% of ZDNet (around $1.5 billion).
ZD is a conglomerate of tech divisions (COMDEX, tech publications, ComputerShoppers, market research, etc.) which I view as being ideal for Internet driven business models. ZD appears to be grossly undervalued and under-appreciated. What's your opinion?"
Reply: To me the value shift went from paper to paperless, that's why ZD (NYSE:ZD - news) and ZDNet (NYSE:ZDZ - news) have similar market capitalizations, with the Web-based (paperless) enterprise at a slight premium. Magazines typically trade at 1x to 2x sales. Web firms can run from 5x to more than 100x depending on the firm.
On CNET (NASDAQ:CNET - news) , it offers a cleaner model as a pure play but on a revenue to revenue comparison ZDNet looks like it's trading at a substantial discount to CNET. Both CNET and ZDNet posted similar 1Q99 revenue and ZDnet has more unique monthly users. The spinout was a good move yet not being a pure play has its drawbacks in value.
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