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RealTime IT News

Proud Parent Pummeled

It's always sad to see an offspring leave the nest, except in those commercials where the exultant parents start measuring junior's room for a hot tub before the kid has pulled out of the driveway to head off for college.

Ziff-Davis said goodbye Wednesday to its Web-based prodigy, ZDNet Group, which made an impressive debut on the New York Stock Exchange, raising $190 million. But instead of starting in on that long-anticipated hot tub project, the trade publishing giant saw the roof fall in on its stock price.

While ZDNet Group's IPO soared - it closed at $36, nearly double the $19 offer price - parent group Ziff-Davis' stock fell 26% to $21.50 after an earlier rally.

This seeming reverse effect surprised a lot of people who expected Ziff-Davis' sluggish stock to ride the coattails of its online unit, especially since holders of ZDNet Group shares also are holders of Ziff-Davis stock. (ZDNet was issued as a "tracking stock," whose shares are used to track the performance of a specific part of a corporation. That means while junior may have his own place, he will be back frequently for meals and to do laundry.)

One possible reason is that many people who originally invested in Ziff-Davis for the company's Internet business potential may have dumped their shares to bet on the ZDNet "pure play."

It's also worth noting that Ziff-Davis' stock had been trading at much higher levels since the ZDNet IPO was announced. The Dec. 22 filing bumped Ziff-Davis stock from $11.69 to $20.75 per share two days later. It hasn't traded below last April's $15.50 offer price since. (Remember, this is a stock that had been floundering, and actually sunk below $4 per share last October.) So Wednesday's downturn may have been a return toward normalcy.

Of course, Ziff-Davis' slide may have less to do with ZDNet than news Wednesday that influential Merrill Lynch analyst Lauren Rich Fine had downgraded the publishing company's stock from "accumulate" to "neutral."

Whatever its parent company's fortunes, ZDNet is well-positioned to compete for online advertising revenue against other technology information and services Web sites run by CNET, CMP and International Data Group. ZDNet sites had 8 million unique visitors in February, according to Media Metrix. In comparision, CNET had 6.8 million. Revenue has grown from $13.6 million in 1995 to $56.1 million last year. Expected earnings this year are $80 million.



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