CNET Networks Needs Some Time

CNET Networks, Inc. (CNET) reported a weaker-than-expected first quarter 2008, with revenues lower than our estimates on the back of weak U.S. media revenues and adjusted earnings better than our estimates. While the company faces a tough market environment in 2008, CNET is well positioned to benefit from any upswing in online advertising growth due to its leading brands as well as relationships with large advertisers. CNET has recently entered into a broad partnership with Yahoo Inc. (YHOO - Analyst Report) that encompasses advertising content and search marketing.

We are maintaining our revenue estimates for 2008 while lowering our earnings estimate according to the guidance provided by the company. A decline in U.S. marketing and services revenue and to a lesser extent, display revenues led to a weaker-than-expected first quarter 2008 results. The company maintained revenue guidance for the remainder of 2008 while reducing GAAP earnings estimates for the rest of the year. We have lowered our full-year 2008 EPS estimate to $0.15 from our previous estimate of $0.17 in-line with the guidance provided.

We continue to rate shares of CNET a Hold as we feel that it will take some more time for the company to realize the full potential of its current restructuring and territorial business expansion initiatives in China and France. The recent partnership with Yahoo is expected to generate incremental revenues of $100 million over the next three years.

We estimate that there is a possibility for around 3.4% upside over the next six months and we have fixed a target price of $7.90 or 2.66x our 2008 Sales estimate over the next six months. We would also like to have more visibility on 2008 revenues before we review our rating on shares of CNET.

Udayan Mukherjee contributed to this report.

Read the full analyst report on CNET.

Read the full analyst report on YHOO.