CNET Networks Reports Fourth Quarter Revenue and Profit Growth
SAN FRANCISCO, Feb. 6 /PRNewswire/ -- CNET Networks, Inc. (Nasdaq: CNET), the global source of technology and commerce-related information, data, exchanges and services, today reported pro forma financial results for the fourth quarter and year ended December 31, 2000. Due to the significance of the October 17, 2000 acquisition of ZDNet, all results for 1999 and 2000 are presented on a pro forma basis as if the acquisition had occurred on January 1, 1999, except where otherwise noted. Pro forma net revenues for the fourth quarter totaled $120.0 million, compared to net revenues of $92.1 million for the same period of 1999, an increase of 30 percent. CNET Networks generated pro forma adjusted EBITDA (earnings before interest, income taxes, other income (expense), realized gains (losses) on investments, depreciation of property and equipment, merger expenses and amortization of goodwill) of $18.1 million in the fourth quarter, representing a 15 percent margin, compared with an adjusted EBITDA loss of $23.6 million in the same period of 1999. Pro forma income, excluding goodwill amortization, merger expenses, realized gains (losses) on investments, and income taxes, was $13.2 million or $0.09 per diluted share, versus a pro forma loss of $25.7 million or $0.21 per share in the fourth quarter of 1999. Including goodwill amortization, merger expenses, realized gains (losses) on investments, and income taxes, CNET Networks' pro forma net loss for the fourth quarter of 2000 was $424.4 million, or $3.16 per share, versus net income of $224.1 million or $1.65 per diluted share in the same period last year. Fourth quarter 2000 results included a $384.2 million non-cash charge to write down certain of the company's investments to market value. Approximately $378 million of the charge is related to CNET Networks' investment in NBCi, which the company received in 1999 in exchange for non-cash assets. For the year ended December 31, 2000, pro forma net revenues grew 49 percent to $427.7 million, when compared to 1999 net revenues of $287.0 million. Pro forma adjusted EBITDA was $46.6 million, representing an 11 percent margin, versus an adjusted EBITDA loss of $15.6 million for the same period in 1999. Pro forma income, excluding goodwill amortization, merger expenses, related gains (losses) on investments and income taxes, was $22.4 million or $0.16 per diluted share, versus a pro forma loss of $24.6 million or $0.20 per diluted share in 1999. Including goodwill amortization, related gains (losses) on investments and income taxes, CNET Networks' pro forma net loss for the year of 2000 was $938.3 million, or $7.17 per share, versus net loss of $110.5 million or $0.91 per diluted share in the same period last year. "We had an outstanding year topped by a solid fourth quarter, during which the merger of CNET Networks and ZDNet became official," said Shelby Bonnie, Chairman and CEO of CNET Networks. "In the fourth quarter, we focused on integrating our businesses to leverage the power of our combined assets. We have succeeded in building a network that is now the largest and most successful technology information, commerce and services company in the world. We have built a platform that links buyers, sellers and suppliers, touching every segment of the technology supply chain, from distributors, to manufacturers, to end users. This business model will serve us well as we continue to expand our audience and services within the estimated $1.4 trillion global IT market." Q4 Operating Highlights: -- CNET Networks ranked as the 7th largest global Web property with over 27 million unique users in November 2000, according to Media Metrix, representing the largest and most loyal technology-buying audience in the world. -- In the United States alone, CNET Networks ranked as a top 10 Web property, with a reach of 24.6 percent of US internet users. -- Aggregated average daily page views grew to 41.1 million, an increase of 58 percent over the fourth quarter of 1999. -- Total aggregated unique customers increased by 100 from the third to the fourth quarter to approximately 1,400. -- Daily leads to merchants reached 447,000, up 61 percent from the third quarter and 109 percent from the fourth quarter of 1999. Revenue per lead averaged $0.64 in the quarter. -- CNET Networks delivered more than 40 million total leads during the fourth quarter that resulted in an estimated $700 million in commerce transactions for our merchants. -- CNET Data Services (CDS) increased its site licenses to 139 in the fourth quarter, from 120 in the third quarter of 2000. -- CNET Networks delivered email alerts from its more than 100 topic-focused newsletter offerings to its 10.4 million unique email subscribers in the fourth quarter. Under generally accepted accounting principles (GAAP), the ZDNet financial results were consolidated with CNET's results effective October 18, 2000 using purchase accounting. Under GAAP, net revenues for the fourth quarter ended December 31, 2000 were $111.0 million, compared to revenues of $38.3 million for the same period in 1999. GAAP net loss was $392.1 million, or $3.12 per share for the quarter ended December 31, 2000, compared to net income of $356.4 million, or $4.18 per diluted share for the same period in 1999. GAAP net revenues for the year ended December 31, 2000 were $264.0 million, compared to revenues of $112.3 million for the same period in 1999. GAAP net loss was $484.0 million, or $5.18 per share for the year ended December 31, 2000, compared to net income of $416.9 million, or $5.00 per diluted share for the same period in 1999. BUSINESS UNIT HIGHLIGHTS CNET Networks' organizational structure positions each business unit to operate efficiently and allow them to move quickly to innovate and address new opportunities as an industry leader. Media CNET Media includes a broad portfolio of US-based CNET and ZDNet-branded technology content delivered over multiple platforms, from online and wireless to television, radio and print. CNET Networks' online media properties reached 44 percent of professionals in the MIS/technical universe*, and 25 percent of all executives and managers or professionals (non-MIS) with business purchase decision-making power*, according to a Nielsen//NetRatings December 2000 custom report. Together, CNET and ZDNet online sites reach over five times the technology audience of its nearest competitor, according to Media Metrix. During the fourth quarter, CNET Networks began introducing innovative new digital marketing units to leverage the unique marketing capabilities of the Internet, in consultation with top agencies and advertising partners. The attention-grabbing, rich media units are designed to enable marketers to communicate brand messaging and more in-depth, targeted information about their company's products or services to CNET Networks' large and influential technology buying audience. The ads were introduced on the newly redesigned CNET News.com (www.news.com) and ZDNet News (www.zdnn.com) news sites, with several blue-chip advertisers -- including IBM, Sun and Oracle -- having signed up to deploy them. Since then, the New York Times Digital and other publishers have said that they plan to adopt the new advertising formats set by CNET Networks. "We are in an evolutionary period for the online advertising marketplace and we're taking a leadership position in assuring that the Web becomes the most effective medium for advertising," said Bonnie. "We believe that if we work together with other players in the industry -- from ad agencies and online publishers to the advertisers themselves -- we can create the ultimate marketing and messaging platform." International Media CNET Networks' International Media division has an Internet presence in 25 countries around the world, making CNET Networks among the top five international networks in terms of global footprint. Media Metrix projects the international home user universe to have already surpassed the size of the US home universe, with 78.8 million unique users in the month of November**. This large market represents tremendous opportunity for growth of the CNET Networks franchise. According to Media Metrix November data, CNET Networks has already attracted 9.4 million unique users internationally. The company ranks first in the technology category in almost all countries measured by Media Metrix, including Canada, France, Germany, United Kingdom, Sweden and Australia. CNET Networks delivered approximately 5.4 million average daily page views to its international sites in the fourth quarter, up 125 percent from the 2.4 million average daily page views of the fourth quarter of 1999. This represents 12 percent of CNET Networks' total, worldwide page views. During the fourth quarter, CNET Networks added to its Asian presence by acquiring the remaining interest in its joint venture with AsiaContent.com to gain full ownership of seven CNET Web sites throughout Asia. By directly controlling the development of the sites' content, audience, brand and revenue streams, the company strengthened its leadership position. CNET Networks also recently announced the formation of a European network sales organization, which provides the company's sales managers in nine European countries the tools they need to provide cross-border marketing opportunities for their clients. This important development will enable the company to better identify efficiencies across borders and new opportunities for marketers, wherever their prospective customers may be. Local CNET Networks' advertising account managers will eventually be able to work with their customers to seamlessly advertise on CNET or ZDNet brands in North America, Latin America, Europe and Asia. Channel Services CNET Data Services (CDS), a standardized, multi-lingual database of more than 600,000 technology and consumer electronics products, added more than 19 new licenses to its customer base, including Yahoo! Shopping, Boise Cascade Office Products, Vitessa, and Singlesource, during the fourth quarter. "For more than a year, we have been adding individual channel services offerings, and implementing innovative features that have allowed us to continue to expand our channel customer base," said Bonnie. "The launch of an enhanced version of CNET ChannelOnline in the first part of this year will be a significant milestone. It will be a clear industry first for participating VARs, by offering a single online platform to evaluate product information, pricing and availability and enabling a frictionless commerce marketplace." mySimon CNET Networks' mySimon (www.mysimon.com) experienced a record-breaking quarter in terms of audience growth, page views, and leads. During the critical holiday shopping month of December, mySimon was the number one, pure-play consumer comparison-shopping site that is not a portal and outdistanced its closest competitor by more than one million unique visitors, based on traffic reported by both Nielsen//NetRatings and Media Metrix. In addition, mySimon users viewed an average of 11.3 unique pages and spent an average of 12.3 minutes on the sited during the month of December 2000, according to Media Metrix. mySimon generated more than 50 percent of CNET Networks' total leads to merchants in the fourth quarter, with more than half of the mySimon leads representing non-technology products. "Since we acquired it a year ago, mySimon has performed extremely well in creating incredibly appealing information and shopping tools for consumers to learn about and shop for all types of products, as well as in implementing programs for merchants to effectively communicate to consumers. mySimon more than delivered on its year 2000 revenue and lead expectations," Bonnie commented. INVESTMENTS & OUTLOOK CNET Networks ended the year 2000 with cash and marketable securities valued at approximately $360 million, of which approximately $300 million was in cash and cash equivalents. For the combined businesses of CNET Networks, Inc., management estimates net revenues will be in the range of $86 million to $92 million for the first quarter of 2001. The company is targeting 2001 annual revenue of $450 to $480 million. Based on these revenue goals, management believes reasonable EBITDA targets are between break even and $5 million in the first quarter of 2001 and approximately $60 million to $80 million (13 percent to 17 percent margins) in 2001. For 2002, we are targeting annual revenue growth of approximately 25 percent and an adjusted EBITDA margin of approximately 25 percent. For further guidance, please refer to the addendum that follows the financial statements. The company also announced that it plans to eliminate duplication in certain businesses and discontinue certain non-growth or unprofitable businesses. These decisions, which will be implemented within the next few weeks, will reduce the company's global workforce by approximately 10 percent. "Because of the current slowdown affecting the economy and particularly the technology market, we have limited visibility and thus have lowered our 2001 revenue guidance by 17 to 20 percent," said Bonnie. "We have also moved to reduce our cost structure, a decision we did not make lightly. We feel these are the steps needed to focus the company squarely on our long-term goals. Our reduced guidance does allow for continued year-over-year revenue growth and increased profitability over year 2000 results, so our overall outlook is still very positive." Safe Harbor This press release includes forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ materially. The statements set forth in the second, third and fourth paragraphs under "Investments and Outlook" and in the attached "Guidance to the Investment Community" are forward-looking statements, as well as other statements throughout the release that are identified by the words "expect," "estimate," "target," "believe," "anticipate" and "intend". We undertake no duty to publicly update these forward-looking statements, whether as a result of new information, future developments or otherwise. Our forward looking statements, are subject to the following risks: that cost-reduction initiatives will not be achieved due to implementation difficulties or contractual spending commitments that can't be reduced; that the businesses identified for further integration to achieve cost synergies will not be integrated successfully; the acquisition of businesses or the launch of new lines of business necessary to respond to changing market conditions, which could increase operating expense and dilute operating margins; the inability to attract new customers for the company's channel services products; increased competition, including from the internet initiatives of Ziff-Davis Media and VNU Publishing, which could lead to negative pressure on the company's pricing and the need for increased marketing; increased costs associated with the need to replace content previously provided by Ziff-Davis Media; the inability to maintain, establish or renew relationships with commerce, advertising, marketing, technology, and content providers, whether due to competition or other factors; a continued or worsening slowdown in advertising spending on the Internet in general or on CNET Networks' properties in particular, which could be prompted by a decrease in consumer spending, the failure of early stage companies who are heavy internet advertisers to receive financing or other factors; and the inability of the company to increase the proportion of advertising from established companies; and to the general risks associated with the company' businesses. For risks about CNET's business, see its registration statement on Form S-4 filed September 8, 2000, in connection with the ZDNet merger, its Form 10-K for the year-ended December 31, 1999 and subsequent Forms 10-Q and Forms 8-K, including under the captions "Risk Factors" and "Management's Discussion and Analysis of Results of Operations." For risks about ZDNet's business, which may also apply to its business as part of CNET Networks, see its Form 10-K for the-year ended December 31, 1999 and subsequent Forms 10-Q and Forms 8-K, as well as its definitive proxy statement dated February 7, 2000 and other SEC filings, including under the captions "Risk Factors" and "Management's Discussion and Analysis of Results of Operations." About CNET Networks, Inc. CNET Networks, Inc. is the global source of technology and commerce-related information, data, exchanges and services. As a top 10 Internet company with established Web sites in 25 countries and 16 languages, CNET Networks connects buyers, sellers and suppliers throughout the IT supply chain with award-winning content via the Web, wireless devices, television, radio and print. Its respected brand portfolio includes CNET, ZDNet, mySimon, News.com, Computer Shopper magazine, and CNET Radio, as well as CNET Channel Services, including CNET Data Services and ChannelOnline. The company's vision is to educate and empower people and businesses by unlocking the potential of the technology world to make things easier and faster, and by helping them make smarter buying decisions. CNET Networks' conference call to discuss its fourth quarter financial results and outlook for 2001 will be hosted by Shelby Bonnie, Chairman and CEO, Dan Rosensweig, President, and Doug Woodrum, CFO, and webcast live at 5:00 PM EST (2:00 PST), today, February 6, 2001. To listen to the discussion, please visit http://www.cnet.com/aboutcnet/0-13614.html , and click on the link for the webcast conference call. The webcast will be archived for seven days at the URL listed above. *who are active online at work **Includes Sweden, which is measured in a separate report from the Media Metrix Multi-Country report. *** Neilsen Net Ratings, Shopping Aggregators Spotlight, October 20, 2000. Supplemental Combined CNET and ZDNet Proforma Consolidated Statements of Operations* Unaudited - (000s) Three Months Ended Year Ended December 31, December 31, 2000 1999 2000 1999 Revenues: Internet $106,232 $73,102 $370,793 $212,567 Other 13,813 19,013 56,881 74,466 Total revenues 120,045 92,115 427,674 287,033 Cost of revenues 43,843 37,222 174,404 117,730 Gross profit 76,202 54,893 253,270 169,303 Operating expenses: Sales and marketing 51,318 66,469 168,936 141,229 General and administrative 6,793 12,021 37,778 43,710 58,111 78,490 206,714 184,939 Adjusted EBITDA 18,091 (23,597) 46,556 (15,636) Other operating expenses: Merger expenses 1,195 -- 1,195 -- Depreciation 5,541 3,482 18,707 11,500 Amortization of goodwill and intangibles 182,725 146,585 763,083 561,054 189,461 150,067 782,985 572,554 Operating income (loss) (171,370) (173,664) (736,429) (588,190) Other income (expense): Realized gain (loss) on investments (384,678) 613,716 (277,783) 736,082 Other income (expense), net 676 1,351 (5,410) 2,523 Total other income (expense) (384,002) 615,067 (283,193) 738,605 Net income (loss) before income taxes (555,372) 441,403 (1,019,622) 150,415 Income taxes (130,947) 217,302 (81,339) 260,891 Net income (loss) $(424,425) $224,101 $(938,283) $(110,476) Basic net income (loss) per share $(3.16) $1.81 $(7.17) $(0.91) Diluted net income (loss) per share $(3.16) $1.65 $(7.17) $(0.91) EPS before amortization of goodwill, merger expenses, realized gain (loss) on investments and income taxes $0.09 $(0.21) $0.16 $(0.20) Shares used in calculating basic per share data 134,218 123,624 130,774 121,820 Shares used in calculating diluted per share data 134,218 135,516 130,774 121,820 Shares used in calculating EPS before amortization of goodwill, merger expenses, realized gains (losses) on investments and income taxes 140,467 123,624 139,019 121,820 * ZDNet consolidated as of January 1, 1999. Consolidated Statements of Operations* Unaudited - (000s) Three Months Ended Year Ended December 31, December 31, 2000 1999 2000 1999 Revenues: Internet $99,168 $35,846 $244,658 $104,887 Other 11,807 2,462 19,361 7,458 Total revenues 110,975 38,308 264,020 112,345 Cost of revenues 39,192 16,054 97,548 47,605 Gross profit 71,783 22,254 166,472 64,740 Operating expenses: Sales and marketing 47,985 48,680 107,119 94,139 General and administrative 6,575 1,988 19,167 8,731 54,560 50,668 126,285 102,870 Adjusted EBITDA 17,223 (28,414) 40,186 (38,130) Other operating expenses: Merger expenses 1,195 -- 1,195 -- Depreciation 5,276 2,231 15,442 7,972 Amortization of goodwill and intangibles 178,174 8,575 340,406 15,036 184,645 10,806 357,043 23,008 Operating income (loss) (167,422) (39,220) (316,857) (61,138) Other income (expense): Realized gain (loss) on investments (384,678) 611,772 (277,783) 734,138 Other income (expense), net 809 891 1,062 1,223 Total other income (expense) (383,869) 612,663 (276,721) 735,361 Net income (loss) before income taxes (551,291) 573,443 (593,578) 674,223 Income taxes (159,207) 217,003 (109,599) 257,315 Net income (loss) $(392,084) $356,440 $(483,979) $416,908 Basic net income (loss) per share ($3.12) $4.84 ($5.18) $5.80 Diluted net income (loss) per share ($3.12) $4.18 ($5.18) $5.00 EPS before amortization of goodwill, merger expenses, costs, realized gain (loss) on investments and income taxes $0.10 $(0.40) $0.25 $0.62 Shares used in calculating basic per share data 125,868 73,624 93,461 71,820 Shares used in calculating diluted per share data 125,868 85,516 93,461 83,373 Shares used in calculating EPS before amortization of goodwill, merger expenses, realized gains (losses) on investments and income taxes 132,117 73,624 101,706 71,820 * ZDNet consolidated as of October 18, 2000 Consolidated Balance Sheet Unaudited (000s) December 31, December 31, 2000 1999 ASSETS Current assets: Cash and cash equivalents $169,311 $53,803 Investments in marketable debt securities 52,864 65,985 Investments in marketable equity securities 55,512 785,909 Accounts receivable, net 95,573 24,628 Other current assets 52,737 18,743 Total current assets 425,997 949,068 Investments in marketable debt securities 81,823 109,802 Investments in marketable equity securities 4,375 -- Property and equipment, net 59,288 30,044 Other assets 189,716 50,609 Goodwill and intangibles 2,102,200 90,788 Total assets $2,863,399 $1,230,311 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $19,044 $11,461 Accrued liabilities 97,861 16,398 Current portion of long-term debt 5,831 5,750 Tax-related liabilities 6,798 311,750 Total current liabilities 129,534 345,359 -- Long-term debt and other liabilities 185,185 179,114 Total liabilities 314,719 524,473 Stockholders' equity: Common stock 14 7 Additional paid in capital 2,659,893 218,670 Other comprehensive income 37,364 121,409 Retained earnings (deficit) (118,227) 365,752 Treasury stock, at cost (30,364) -- Total stockholders' equity 2,548,680 705,838 $2,863,399 $1,230,311 Guidance to the Investment Community Full Q1 Q2 Q3 Q4 Year 2001 2001 2001 2001 2001 Net revenues $86-92 $95-105 $115-125 $145-160 $450-480 Cash operating expense $86-87 $90-95 $100-105 $115-120 $380-400 EBITDA $0-5 $5-10 $15-20 $30-40 $60-80 EBITDA margin 0-5% 5-10% 13-16% 20-25% 13-17% Depreciation expense $6.2 $6.6 $6.8 $6.9 $26.5 Amortization expense $183 $183 $183 $183 $732 Effective tax rate -- 38% 38% 38% 38% Other assumptions: Assume a 1 million share increase per quarter in fully diluted shares outstanding. Note that shares outstanding including options calculated are a function of the stock price and difficult to forecast. Safe Harbor for Guidance Attachment: This table consists solely of forward-looking information that is subject to risks and uncertainties that could cause actual results to differ materially. We undertake no duty to publicly update these forward-looking statements, whether as a result of new information, future developments or otherwise. These projections are subject to the following risks: that expected synergies of the ZDNet acquisition will not be achieved; that the businesses will not be Integrated successfully; that acquisition costs will be greater than expected; the acquisition of businesses or the launch of new lines of business, which could increase operating expense and dilute operating margins; the inability to identify, develop and achieve success for new products, services and technologies; the inability to attract new customers for the company's channel services products; increased competition, which could lead to negative pressure on the company's pricing and the need for increased marketing; the inability to maintain, establish or renew relationships with commerce, advertising, marketing, technology, and content providers; a decrease in the growth of advertising spending on the Internet in general or on CNET Networks' properties in particular; and to the general risks associated with the company' businesses. For risks about CNET's business, see its registration statement on Form S-4 filed September 8, 2000, in connection with the Ziff-Davis merger, its Form 10-K for the year-ended December 31, 1999 and subsequent Forms 10-Q and Forms 8-K, including under the captions "Risk Factors" and "Management's Discussion and Analysis of Results of Operations." For risks about Ziff-Davis's business, which may also apply to its business as part of CNET Networks, see its Form 10-K for the-year ended December 31, 1999 and subsequent Forms 10-Q and Forms 8-K, as well as its definitive proxy statement dated February 7, 2000 and other SEC filings, including under the captions "Risk Factors" and "Management's Discussion and Analysis of Results of Operations."
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