CNET A Buy Despite Revenue Quirk

CNET Networks spooked investors this week with a blurb in its 10-Q report
filed to the Securities and Exchange Commission that said it booked some of
its revenue from advertisers in the form of stock — 10.4 percent, or $5.8
million to be exact.

The revenues paid in the form of equity stem primarily from three contracts
that CNET struck in 1998 and 1999 — two with private companies and one with
Mail.com. Two of the contracts were for a combination of cash and equity and
one was for all equity.

CNET said Friday it thought the structure of the contracts — two of which
end next quarter, one that ends in early 2001 — would be financially and
strategically beneficial.

While the network’s share price plummeted 25 percent to $19.13 Thursday,
analysts from noteworthy firms such as Hambrecht + Co. and Goldman Sachs are
saying the sell-off is creating a nice little buy opportunity. The consensus
opinion is that the contracts are more than a year old and should not be
considered harmful or a hindrance going forward.

Sachs came to CNET’s defense in a statement Friday, saying investor reaction
was overblown.

“We believe the 25 percent decline in CNET shares in reaction to the
company’s 10Q disclosure regarding 3Q revs earned in the form of equity
creates an even more attractive opptnty for investors,” the statement said.
“Consistent with our comments yesterday, the company issued a press release
stating that it recognized $5.8M in revs paid in the form of equity, which
acct’d for 10 of CNET’s revs on a stand alone basis and 5 percent on a pro
forma basis including ZDNet revs.”

“The impact of these cash and equity contracts is not material to our ’01
revenue projection of $605.2M.”

CNET said it has $340 million in cash and marketable debt securities. The
company also said it owned $130 million in marketable stock as of Sept. 30.

CNET is a direct competitor of internet.com, the parent of this web site.