Update: See announcements here. CNET has sold Webshots for $45 million in cash as well as other announcements. They have not announced a stock buyback or any acquisitions, but its clear that they are preparing to make some moves with all this cash.
CNET Networks has $250 million burning a hole in its pocket. The Internet media company secured a line of credit for that amount on October 16, even though it already had $60 million in cash (this for a company with estimated annual revenues of $418 million). So what is it going to do with all that cash? We may find out later today during its third quarter earnings call, but a good bet is that a stock buyback is in the works.
CNET’s stock has gone nowhere the past few years. And its current market capitalization of $1.2 billion is close enough to its enterprise value of $1 billion to get private equity funds and hedge funds sniffing around. (It is also dangerously close to the total value of its assets which, according to Oppenheimer $ Co. analyst Sandeep Aggarwal, are worth $674 million after factoring in the new cash infusion). CNET is under the same takeover pressures as larger print media companies like Dow Jones (bought for $5 billion by News Corp.) and the Tribune Co. (bought for $8 billion by Sam Zell).
If a stock buyback manages to jack up the market cap, a takeover could be averted. With only 152 million shares outstanding, CNET could buy up 20 percent of its shares with that $250 million, assuming it could buy them all at today’s stock price of $8. (I offer this back-of-the-envelope calculation just as a reference point—obviously, a buyback would have a major impact on the price). Although, whether that is the best use of its cash, is another question entirely.
It’s also possible CNET secured the credit line in order to be able to make quick moves if acquisition opportunities pop up. We’re hearing a number of rumors around possible asset sales or spinoffs, too. More info later today.
“So what is it going to do with all that cash? ”
I hear Facebook is taking 250M payments?
What CNET should have done was to plead to Ballmer, teasing him with a glimpse of an all out ad publishing network then wham, bam, thank you ma’am, get the 20 billion valuation it sorely needs. I mean, if you’re going to raise money, why isn’t there 500 large on the table?
Umm…having $250MM in credit is different than having $250MM in cash…IMHO
Let’s see Micheal…first you tease us on Twitter about a CNET announcement…then you let us know they have money to burn…and just earlier this month Henry Blodget proposes the possible sale of Techcrunch to CNET…hmm will it be a dual announcement me wonders.
I can easily see the Crunch network going to CNET with this money instead of a stock buyback.
eric, no offense but your post makes no sense. that market cap is close to enterprise value has no bearing on whether its a good takeover target. and the total value of the assets should be equal to the enterprise value, so again it makes no sense, unless you are talking about book value, which also would make no sense.
i like your posts generally, but you should probably stick to technology not finance.
$250MM in debt is going to going to take a toll on their Cashflow statements. I think the announcement said about 10% interest rate, which will be $25MM/year just for debt servicing nevermind about principal payback.
I wonder indeed what they are up to…
If they plan to buyback, its time to get your portfolio tight, as its a no brainer.
I agree with Marcelo. The article compares irrelevant data in an attempt to validate a takeover or buyback.
For one, CNET would have to get approval from debtholders to initiate an equity buyback with debt. This is a feasible option for the company, but in the current fixed income market, debtholders would never approve a buyback. They would want their money back.
I could see them acquiring an Internet company over the next few weeks or months. This would be even more effective than a buyback, especially after Facebook received a $15B valuation.
It is not a wise financial decision to use $250m in CREDIT to do a stock buyback. Typically you use cash sitting on the balance sheet to do a buyback, justifying that your stock is a better investment than a savings account basically. If you start paying 10% interest ($25m per year) on a credit line and do a buyback, sure you might increase the value of the stock, but then the stock will decrease in value because all your future earnings just went down by $25m per year. So, at the end of the day you’ll probably end up in the same place.
There must be something else going on.
This is funny, since just a few days ago, i gave the hypothetical example of CNET buying the “Crunch” properties. I think that would be a perfect fit for them. Why
1. Regardless of what anyone says, “social networking/computing” is here to stay. If you look at the trends over the years, forums were very very popular, the masses always felt like they had something to contribute, while networking without barriers with their friends.
2. It gets them into the “social computing” game.
3. Talent, writers at techcrunch could compliment the editorial staff at CNET.
4. Synergy, now you can amalgate CNET extensive reviews of everything from cars to lamps to pens with Techcrunch, users (which i think share the same demographics).
CNET management needs to do something to get the company and its stock moving again. The company’s 52 week range in stock price has been 6.90-9.88 – not exactly setting the world on fire.
I think a stock buyback, coupled with announcements of some new, exciting initiatives, could get things going. CNET remains an Internet leader with great assets and a top-notch brand. Too bad their profitability and market cap don’t reflect this.
If somebody from CNET reads through here I have a message for them. Come visit our offices one day and take a look at our new search engine. It won’t cost you anything to come look aside from a plane ticket and a night at holiday inn.
TechCrunch is better because of Erick’s coverage and writing.
It was great before, it’s just better now.
After giving this a little more thought, I would love to see CNET acquire TechCrunch or Guru.com.
Did Erick write this post to send CNET a message that it has enough cash to buy TechCrunch?
Hey, if CNET reads this – come check out BeerCoSoftware!
We spend all day posting comments on TechCrunch about our totally awesome new search engine that is like, radical, and awesome.
All you need to do is buy a plane ticket and book a night at the holiday inn – then you can come to our totally sweet office in my mom’s basement and I’ll give you a tour of the “facilities” … Google is like, shaking in their little spaceboots about my search engine, called the “Associated Search Support Hub Assisted Tech” (ASSHAT)
Sweet! Spamming is kewl!
I really like Techcrunch for an up-to-date overview over Internet start-ups and news on the big boys like Google. The writing isn´t always great, but more than sufficient given its newsworthyness.
But this post is nothing short of a joke. It´s like my mom writing about B2C busines models. I really enjoy the addition of Eric to the team. However, he should stick to his core competence.
A share buy back based on a credit line might increase the value of the stock due to higher leverage. However, it also forces the company to pay more interest. Hence, it limits the option for investing.
So you could also say: CNET has no more options to invest. As we are talking about a high growth segment of the economy, that would be a sad message for CNET. That could outweigh the benefit of more leverage.
In addition, reducing liquidity in its shares has also pros and cons. BTW: 60m cash on is 1,5 times monthly revenues. NOT that much. Other readers have already commented on the issue on enterprise value, asset value etc. The analysis in the post is just plain wrong.
Please guys, stick to your core. That is what makes you great. For stock market coverage and economic analysis please just read the WSJ and The Economist.
Best, Sven
The comment above isn’t from me, and we’ll pay for CNET’s plane tix and hotel if they want to come. I haven’t been in my mom’s basement since I was 14. We’re in an office building.
#18: Stop trying to impersonate my awesome-ness. The REAL BeerCoSoftware is run from my basement and has been SINCE I was 14, when I was adopted by Raelians up here in Canada.
Seriously CNET – I’ll pay for a (business class) plane ticket and the holiday inn has a sweet buffet in the morning (if you get up by 9:30 am)
Kewl.
welcome to stockcrunch, or is it crunch-net?
@19
“I’ll pay for a (business class) plane ticket”
We’re not paying business class for anybody. You’re a jerk. My offer was for coach travel.
Am I so famous now that I have impersonators?
I am a really good programmer…. hmmm…..
OK, fanboi, wanna buy a tshirt and mug? Damn, we’re so hot, I’m going to have to start selling merch.
Look at me! Look at me!
I am an attention whore!
@marcelo and @michael Eric’s point about enterprise value v. asset value is, me thinks, that there’s not much here in terms of good will, i.e. the value of the Cnet brand above and beyond the assets it deploys in its operations. I’d be surprised if that were the case, though.
@22, why don’t you post with your own name?
Say all you want, at least I don’t post anonymously. I am right here at the office and will back up what I say. See the difference?
@marcelo, michael, et al, enterprise value and market cap are related but different. Enterprise value = market cap + debt – cash (roughly)
http://www.inve...rprisevalue.asp
It is one way to measure a company’s takeover value. Assets, however, are determined by the book value of the current and long term assets on the balance sheet, which is a different calculation than enterprise value. When the gap between a company’s market cap and assets narrows, it becomes more attractive to takeover buyers. Similarly, comparing market cap and enterprise value is useful because it shows you what sort of premium an acquirer would have to offer.
@everyone else, no this was not meant to be a solicitation to buy TechCrunch, which is a moot point if they are going to use the money to buy their own stock. We’ll learn soon enough if I was right about the buyback.
Chris, go away… You ruin everything!!! Take your beerco somewhere else. We are not drunken startup.
P.S. @22, @24… Stop talking to yourself.
“chris is ruin everything! ”
When you come this time, please don’t forget the fortune cookies. Last time my desert was a wash because of your bad service. Oh, and I want FORKS this time.
Erick, my point was not about whether they should buy back their stock or not, i was merely offering my two cents on why a “acquisition” of Crunch properties might ad more value to the company since there longterm strategy is to add shareholder value.
I dont see why you thought it was necesary to apologize even if this was meant to be a solicitation. If the “Crunch” properties are seem as a good fit, meaning,
1. you have a clear stategy.
2. revenue model
3. very good growth
4. good leadership
5. good cash flow.
Then why not?
Might I suggest to the fellows with green comment boxes that you implement some Digg style vote up, vote down in the comments section.
There are a handful of persistent offenders (Chris from BeerCo, a couple of passé Fake Xxxxs and the chap from Stanford with his FB course) who feel compelled to bombard virtually every post with the same dreary and crushingly inevitable deluge of trite and shameless attempts at self publicity.
Simple steps taken to militate against the ruinous actions of a tenacious minority would make it a significantly more comfortable place for the rest of us.
Chris… You start to act like middle-age childish. What are you 40 year old guy with “culture fit” problem?
Go get job at Google!!! Stop arguing!!!
They will blow it investing in some of this “social” fad crap!
http://fakestev...er.blogspot.com
They will buy the TechCrunch Network with all that money!
erick,
wrong again. you say:
“When the gap between a company’s market cap and assets narrows, it becomes more attractive to takeover buyers. Similarly, comparing market cap and enterprise value is useful because it shows you what sort of premium an acquirer would have to offer.”
book value of assets is irrelevant, particularly for an internet company. all it shows is how much they spent in fixed depreciable “things” like buying a building or some computers. (im not going to go into goodwill because i am afraid that will go way over your head.) you will hopefully agree that the gap between the market cap of a company like cnet and how many computers and sq ft of space they own is pretty irrelevant.
further, for companies were book value is a better representation of actual market value of assets, then the relevant comparison would be Enterprise value, not market cap.
finally, comparing market cap and enterprise value is NOT useful (as you claim) because the “premium” that an acquirer would have to offer is completely independent of this difference. (it has to do ultimately with how competitive an acquisition it became and how the current owners of cnet – institutional and retail – and board played out the offer).
finally 2, if you are learning finance through investopedia then you are in bigger trouble than i thought:>
“Chris… You start to act like middle-age childish”
So THAT’s where the fortune cookie went. DAMN YOU, DAMN YOU TO BLOODY HELL.
You steal my fortune cookie!!!! You BAD MAN $%!&*!!!
Ha ha ha – I think that anyone who uses English improperly is a Chinese delivery person.
LOL!
Chinese delivery people are so stupid and funny! Ha ha!
Try my search engine!
How about your Beerco company next to Chinese resturant?
Does that count?
Hey, Chris… Thank you for insulting your own motherland & your own Chinese working companies.
Canadian Chinese resturant & your lousy Canadian startup = Canucks
@marcelo (33), you can be as patronizing as you like but different investors look at different metrics. I offered a variety. You can do your own math. I agree that enterprise value is the most relevant metric.
On assets, it is not so simple. This metric is more important to financial buyers looking to buy a company on the cheap. Right now you can buy CNET for 2X its assets (after factoring in the $250 million line of credit). Dow Jones, by comparison sold for 2.5X its assets of $2 billion. So CNET is cheap. That is my point.
You may think CNET is an Internet company, but it is valued more like a traditional media company. And its assets are not just property, plant, and equipment. Those buildings and computers make up only $71 million worth of the assets on its balance sheet. The rest is cash, accounts receivable ($79 million), intangible assets (such as trademarks and other intellectual property), and, yes, goodwill ($132.5 million). Those are relevant to any buyer, at least to establish a floor price for the company. You might actually want to look at CNET’s balance sheet before opining about what is on it. Unless that sort of thing is over your head.
CNET is not going to sell because it hasn’t realised its full value yet. It has invested hugely in China and the revenue being generated by those assets must currently be a fraction of what they are going to be in 3-5 years time.
When their Asia operations start to fly, CNET’s stock is going to fly. If you are a long-term invstor, buy CNET this year and hold on. If you are a daytrader, look elsewhere.
But CNET will not sell because they know the real value of their operations has yet to be fulfilled. They are just keeping things lean in the meantime.
And webshots stuck out like a sore thumb in their inventory (as does that crummy dating site they own).
#35 is not me.
“Hey, Chris… Thank you for insulting your own motherland & your own Chinese working companies.”
I have 2 motherlands, 1 is the USA, and the other is Canada, and I do not own Chinese working companies. I go out of my way never to trade with China, because of their poor human rights record and bad quality control.
Surely a lot of people in Canada saw The Verdict with Paula Todd last night on CTV news where she lambasted Chinese importing in Canada. She went point by point letting Canadians know why they should not deal with China.
http://www.ctv....layer/Docs.html
Watch the show “The Verdict” from Oct 25th on CTV broadband.