Avalon Research Chairman Michael Margolies: CNET Networks Worth Only $6

This weekend's Barron's contains an interview (paid subscription required) with Avalon Research Chairman Michael Margolies. Here's a brief excerpt containing his comments about CNET Networks, ticker CNET:

What else do you have for us?

CNET Networks.

A blast from the dot-com past.

Yes, well, it still has quite a multiple because now it is being compared to Yahoo! and Google. It is a portal of some note but it is really not a portal that benefits from the big boom in online advertising. Growth in online advertising has been driven primarily by growth in search engines and, more specifically, search in retail and travel, which CNET has little or no exposure to. In spite of its inferior growth compared to Yahoo! and Google, CNET trades at 48 times 2005 earnings and 4½ times sales of $352 million. Also, the 2005 earnings estimates are highly back-end-weighted.

Meaning?

They did zero in the first quarter; three cents a share is the estimate for the June quarter; four cents for September and 15 cents in December. That 15 cents is versus 9 cents, I believe, a year ago. There is a lot of risk in that estimate. Those earnings estimates are suspect and I bet there will be some P/E compression due to the backend nature of the estimates and its trailing growth. CNET has also lost some top editorial talent to Yahoo!. It trades at 11 and we see it at 6.

CNET chart below.

Full disclosure: at the time of writing I'm short CNET.