Analysis: NBC Buys Part of Cheapest Portal Play

CNET continues to find large media allies in its aggressive push to grow its businesses through outside alliances.

Today’s news that NBC will acquire 4.99% in CNET (NASDAQ:CNWK) for $26 million and a 19% ownership stake in Snap! sent CNWK shares up more than 17% to as high as $39.25 per share, valuing NBC’s CNWK stake at more than $28 million.

We estimate that portal and Web directory Snap! was a $200 million
media property (although not reflected in CNWK stock price per se) before
NBC bought in. The cash is basically working capital given CNET’s lack of
cash. As of the first quarter ending March 31, CNET had $15 million working
capital, hardly the pocketbook to compete with portals such as Yahoo!, Excite, Infoseek, and Lycos.

Snap! constitutes a larger vision than CNET proper, given the fierce portal space competition and market opportunity since Web directories are the starting points for many Internet users. That may explain why CNET chairman Halsey Minor was named chairman of Snap! today also.

NBC’s buy-in gives CNET the ability to ramp up Snap! with the cash and reach of one of the nation’s largest broadcast and cable network franchises (NBC reaches more than 100 million U.S. households) to feed the service.

Snap! Online revenues totaled $906,000 for the quarter ending March 31,
1998, with an operating loss of $3.7 million. Total Snap! expenses were
$4.6 million for the quarter, equal to total Snap! expenses for the fourth

The service has deals with Compaq, Toshiba, 3Com and Sony among the PC and
Internet hardware makers. CNET claims Snap! averages 1.7 million unique users
per month, and calls it the fastest-growing service in CNET’s history.

We expect more media firms to wake up to the Web network space where
portals lead the way. Disney was rumored to be interested in Excite.
Perhaps this news may trigger some movement there.

The CNET-NBC deal sent shares of several search and navigation firms up as
of 11:30AM EST. Yahoo! (NASDAQ:YHOO) was up 3% to $112.73; Excite
(NASDAQ:XCIT) up 5% to $65; Lycos (NASDAQ:LCOS) up 7% to $53.75; and
Infoseek (NASDAQ:SEEK), with the smallest market capitalization of the
bunch, gained the most percentage-wise, up 8% to $25.125.

Each of these larger and more well-known services has seen market
capitalizations soar north of $1 billion in the past few months, making NBC’s
investment in Snap! look like the cheapest way to play the portal game.
However, both CNET and NBC have a long way to go: Snap! reach of Internet
users is estimated at just 2% while Yahoo is about 50%.

With that in mind, NBC appears to be taking a buy-and-build approach in the
Web navigation space. Other CNET dealings include a content alliance with
Bloomberg. Intel owns under 5% of CNWK shares.

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