CNET Networks Reports First Quarter 2005 Financial Results

CNET Networks Reports First Quarter 2005 Financial Results

    Business Editors/High-Tech Writers

    SAN FRANCISCO--(BUSINESS WIRE)--April 25, 2005--CNET Networks, Inc. (Nasdaq:CNET)

--	Company Posts Total Revenue of $74.7 Million
--	Interactive Revenue up 23%
--	Monthly Unique Users up 38% and Average Daily Page Views up 114%

    CNET Networks, Inc. (Nasdaq:CNET) today reported results for the first quarter ended March 31, 2005.
    "We are starting 2005 with strong growth across the board," said Shelby Bonnie, chairman and CEO of CNET Networks. "The continued growth and expansion across our brands, audience, and customer base helped drive strong results during the first quarter. The leverage in our model is becoming more apparent as evidenced by the continued top-line strength and improved profit margins, underscoring CNET Networks' ability to achieve long-term, sustainable growth."

    -- Total revenues for the first quarter totaled $74.7 million, an
    18 percent increase compared to revenues of $63.4 million for
    the same period of 2004.

    -- Interactive revenue increased 23 percent to $68.5 million in
    the first quarter versus $55.5 million in the same period in
    2004.

    -- Operating income equaled $413,000 during the first quarter of
    2005 compared to an operating loss of $5.7 million in the
    first quarter of 2004.

    -- Operating income before depreciation and amortization was $6.5
    million, a 168 percent increase compared to $2.4 million
    during the first quarter of 2004.

    -- The profit margin of operating income before depreciation and
    amortization increased to 9 percent, from 4 percent during the
    first quarter of 2004.

    -- Net income for the first quarter of 2005 was $383,000, or
    $0.00 per diluted share, which includes a gain on the sale of
    an investment. This compares with net income of $2.9 million,
    or $0.02 per diluted share, for the same period of 2004.
    Approximately $0.04 of net income per share for the first
    quarter of 2004 was attributable to a net gain from unusual
    items.

    Business Review

    "We are seeing strong momentum across our brands, which cover some of the most important content categories on the Web. The market for online advertising continues to strengthen, and so does our confidence in the interactive content category. We are focused on continuing to increase our exposure to this opportunity," said Bonnie.

    -- CNET Networks' global network of Internet properties reached
    an average of 105.9 million unique monthly users during the
    first quarter of 2005(1), an increase of 38 percent from the
    first quarter of 2004. Average daily page views increased to
    94.7 million during the first quarter(1), up 114 percent from
    the year-ago quarter.

    -- CNET Networks continued to progress in its efforts to expand
    its customer base and add new advertiser segments across the
    network. With a growing audience and high quality demographics
    that are of importance to brand marketers, CNET Networks was
    able to extend its customer roster network-wide. For example,
    during the quarter, properties such as CNET.com, CNET
    News.com, and Webshots.com added several new advertisers, such
    as Delta Airlines, General Motors, and Visa. The company also
    continued to attract a more diversified advertiser base to its
    games and entertainment properties, including customers such
    as Pepsi, Honda, and McDonald's, who are interested in
    reaching the coveted 18- to 34-year-old male audience
    demographic on properties such as GameSpot and MP3.com. The
    company has also made several product enhancements across the
    network that will help further its efforts to attract a
    broader customer segment. These product expansion efforts
    include:

-- As auto manufacturers show increasing interest in online advertising, CNET Networks will be expanding its content coverage on CNET.com this year with editorial and features related to the auto technology category. As advanced technology features in automobiles become more pervasive, CNET.com will broaden its editorial coverage in the auto technology category. CNET.com stepped up its auto coverage significantly during the Consumer Electronics Show in January, when its editors extensively covered the many technologies that matter for both auto and technology enthusiasts alike, as well as covering the latest trends at auto shows in Detroit, Chicago, and New York.

-- This month, CNET Networks announced the launch of its BNET Web site (www.bnet.com), the latest addition to the company's portfolio of business-to-business properties. BNET, a comprehensive, high-quality source of business thought leadership, is designed to help business leaders get smart about what's working at work by finding the quality knowledge resources they need, regardless of their job function or industry. Since its soft launch a year ago, BNET has already contributed to CNET Networks' goal of expanding its content offerings and attracting a broader audience and new customer segments. It has amassed nearly 50,000 high-quality whitepapers, case studies, Webcasts, and audiocasts; attracted more than 200,000 registered users; and secured several advertising sponsors in new categories, including executive education, business education and management consulting firms.

--	This month, CNET Networks announced that it acquired HeyPix! (www.heypix.com), which will enable it to deliver advanced photo management, social networking, and blogging capabilities to the Webshots audience (www.webshots.com). CNET Networks entered the photo sharing category last summer with its acquisition of Webshots, the leading photo sharing Web site, and through the HeyPix transaction, plans to extend its position with the addition of cutting-edge features and services. Webshots maintained its leadership position in the online photography category (ranked number one according to Nielsen//NetRatings) during the first quarter and continues to reach record numbers across many important metrics. For example, more than 750,000 photos are uploaded daily, and its photo library grew by 66 million photos in the first quarter of 2005 alone, for a total of 175 million publicly and privately shared photos at the end of the quarter.
--	Last week, CNET Networks announced further plans to expand its online presence and personal technology content in China. The company entered into a definitive agreement to acquire the assets of PCHome (www.pchome.net), in cooperation with Chinese subsidiaries and affiliates, for a total of $11 million in cash payments, with $5 million due at closing and the remaining $6 million due in the fourth quarter of 2005. PCHome is a leading personal technology and commerce Web site serving all of China with headquarters in Shanghai. In related moves last year, CNET Networks acquired ZOL and Fengniao, two leading personal technology Web sites based in Beijing. Combined, these acquisitions position CNET Networks as a leading provider of personal technology content in two of the largest and fastest growing markets in China, significantly extending its online audience reach there. With minimal audience duplication, PCHome adds a user base that is comparable to that of ZOL and Fengniao combined.

    Business Outlook

    For the second quarter of 2005, management anticipates total revenues of $81 million to $85 million. Interactive revenues are expected to be in the range of $75 million to $78 million, and publishing revenues are expected to be between $6 million and $7 million. Management estimates operating income between $4.3 and $6.3 million during the second quarter, and operating income before depreciation and amortization of between $11.5 million and $13.5 million for the quarter. Earnings per share is expected to be in the range of $0.02 and $0.03 during the second quarter.
    For the full-year 2005, management is estimating total revenues will be in the range of $345 million and $355 million. Management expects Interactive revenue to be in the range of $315 million to $323 million, and publishing revenues are expected to be between $30 million and $32 million. Management estimates operating income between $34 million and $39 million during 2005, and operating income before depreciation and amortization is expected to be between $64 million and $69 million. Earnings per share is expected to be in the range of $0.20 and $0.23 for the year ended December 31, 2005.
    More detailed guidance, as well as a table that reconciles operating income (loss) before depreciation and amortization guidance to operating income (loss) guidance can be found on the "Guidance to the Investment Community" sheet that accompanies this press release.

    Conference Call and Webcast

    CNET Networks will host a conference call to discuss its first quarter 2005 financial results and business outlook beginning at 5:00 p.m. ET (2:00 p.m. PT), today, April 25, 2005. To listen to the discussion, please visit http://ir.cnetnetworks.com and click on the link provided for the webcast conference call or dial (800) 344-1035 (international dial-in: (706) 679-3076). A replay of the conference call will be available through May 9, 2005 via webcast at the URL listed above or by calling (800) 642-1687 (international dial-in: (706) 645-9291) and entering the conference ID number 5455436. The company's past financial news releases, related financial and operating information, and access to all Securities and Exchange Commission filings, can also be accessed at http://ir.cnetnetworks.com.

    Safe Harbor

    This press release and its attachments include forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ materially. These forward-looking statements include the statements under the section entitled "Business Outlook," which sets forth our estimated financial performance for the second quarter and full year of 2005, and statements regarding our growth prospects and expectations regarding the future success of our products and services. In addition, management expects to provide forward-looking information statements on the conference call to be held shortly following the issuance of this release, which are also subject to risks and uncertainties that could cause actual results to differ materially. The forward-looking statements in this release and on the conference call are identified by the words "expect," "estimate," "target," "believe," "goal," "anticipate," "intend" and similar expressions or are otherwise identified in the context in which they are made as being forward-looking. These statements are only effective as of the date of this release and we undertake no duty to publicly update these forward-looking statements, whether as a result of new information, future developments or otherwise. The risks and uncertainties that could cause actual results to differ materially from those projected include: a lack of growth or a decrease in marketing spending on the Internet due to failure of marketers to adopt the Internet as an advertising medium at the rate that we currently anticipate; a lack of growth or decrease in marketing spending on CNET Networks' properties in particular, which could be prompted by competition from other media outlets, both on and off the Internet, dissatisfaction with CNET Networks' services, or economic difficulties in our clients' businesses, as evidenced in previous periods by many of our enterprise technology customers; economic conditions such as weakness in corporate or consumer spending, which could prompt a reduction in overall advertising expenditures or expenditures specifically on our properties; the failure of existing advertisers to meet or renew their advertising commitments as we anticipate, which would cause us to not to meet our financial projections; the failure to attract advertisers outside of our traditional technology and consumer electronics categories, which would cause us to not meet our financial projections; a continued decline in revenues from our print publications as advertising dollars shift to other media; the acquisition of businesses or the launch of new lines of business, which could decrease our cash position, increase operating expense, and dilute operating margins; an increase in intellectual property licensing fees, which could increase operating expense, including amortization; the risk of future impairment of our intangible assets, goodwill or investments based on a decline in our business or investments; and general risks associated with our business. For risks about CNET Networks' business, see its Annual Form 10-K for the year ended December 31, 2004 and subsequent Forms 10-Q and 8-K, including disclosures under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations," which are filed with the Securities and Exchange Commission and are available on the SEC's website at www.sec.gov.

    About CNET Networks, Inc.

    CNET Networks, Inc. is a worldwide media company and creator of content environments for the interactive age. CNET Networks takes pride in being "a different kind of media company," creating richer, deeper interactive experiences by combining the wisdom and passion of users, marketers and its own expert editors. CNET Networks' leading brands -- such as CNET, GameSpot, MP3.com, Webshots, and ZDNet -- focus on the personal technology, entertainment, and business technology categories. The company has a strong presence in the US, Asia and Europe.

    (1) CNET Networks January - March 2005 (internal log data)

Consolidated Statements of Operations Unaudited (in thousands, except share and per share data)

Three Months Ended March 31, ------------ ------------ 2005 2004 ------------ ------------

Revenues Interactive $ 68,505 $ 55,505 Publishing 6,207 7,892 ------------ ------------ Total revenues 74,712 63,397

Operating expenses: Cost of revenues 38,680 33,850 Sales and marketing 18,805 18,234 General and administrative 10,764 8,903 Depreciation 3,915 7,171 Amortization of intangible assets 2,135 900 ------------ ------------ Total operating expenses 74,299 69,058

Operating income (loss) 413 (5,661)

Non-operating income (expense): Realized gains on investments, net of impairments 568 8,032 Interest income 363 482 Interest expense (780) (1,678) Other (85) 1,832 ------------ ------------ Total non-operating income (expense) 66 8,668 ------------ ------------ Income (loss) before income taxes 479 3,007

Income tax expense 96 79 ------------ ------------

Net income (loss) $ 383 $ 2,928 ============ ============

Basic net income (loss) per share $ 0.00 $ 0.02 ============ ============

Diluted net income (loss) per share $ 0.00 $ 0.02 ============ ============

Shares used in calculating basic net income (loss) per share 144,847,388 142,627,445

Shares used in calculating diluted net income (loss) per share 151,392,920 150,074,641

Consolidated Balance Sheets Unaudited (in thousands, except share data)

March 31, December 31, 2005 2004 ----------- ----------- ASSETS Current Assets: Cash and cash equivalents $ 34,914 $ 29,560 Investments in marketable debt securities 25,212 22,193 Accounts receivable, net 59,963 66,712 Other current assets 16,252 15,155 ----------- ----------- Total current assets 136,341 133,620

Restricted cash 19,774 19,774 Investments in marketable debt securities 17,084 22,199 Property and equipment, net 50,480 48,989 Other assets 20,292 21,722 Intangible assets, net 33,386 34,756 Goodwill 131,350 126,287 ----------- ----------- Total assets $ 408,707 $ 407,347 =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 7,073 $ 6,903 Line of credit 5,000 5,000 Accrued liabilities 58,543 61,992 Current portion of long-term debt 3,845 4,007 ----------- ----------- Total current liabilities 74,461 77,902

Non-current liabilities: Long-term debt 137,614 135,614 Other liabilities 106 252 ----------- ----------- Total liabilities 212,181 213,768

Stockholders' equity: Common stock; $0.0001 par value; 400,000,000 shares authorized; 145,158,348 outstanding at March 31, 2005 and 144,455,283 outstanding at December 31, 2004 15 14 Additional paid-in-capital 2,722,475 2,719,576 Accumulated other comprehensive income (12,988) (12,652) Treasury stock, at cost (30,453) (30,453) Accumulated deficit (2,482,523) (2,482,906) ----------- ----------- Total stockholders' equity 196,526 193,579 ----------- ----------- Total liabilities and stockholders' equity $ 408,707 $ 407,347 =========== ===========

Statements of Cash Flows Unaudited (in thousands) Three Months Ended March 31, --------------------- 2005 2004 -------- ------- Cash flows from operating activities: Net Income $ 383 $ 2,928 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,050 8,071 Asset disposals 9 - Noncash interest 143 216 Allowance for doubtful accounts 529 686 Equity in losses of investees 207 - (Gain) loss on sale of marketable securities and privately held investments (568) (8,032) Changes in operating assets and liabilities, net of acquisitions Accounts receivable 6,361 7,126 Other assets (148) (2,397) Accounts payable 170 94 Accrued liabilities (3,449) (2,499) Other long-term liabilities (146) 319 -------- ------- Net cash provided by operating activities 9,541 6,512 -------- -------

Cash flows from investing activities: Purchase of marketable debt securities (2,403) (9,717) Proceeds from sale of marketable debt securities 4,687 9,640 Proceeds from sale of investments in privately held companies 568 9,095 Investments in privately held companies (850) - Net cash paid for acquisitions (3,185) (1,673) Capital expenditures (5,164) (3,277) -------- ------- Net cash provided by (used in) investing activities (6,347) 4,068 -------- -------

Cash flows from financing activities: Payments received on stockholders' notes - 137 Net proceeds from employee stock purchase plan 330 227 Net proceeds from exercise of options 2,573 3,042 Proceeds from borrowings 10,000 - Principal payments on borrowings (10,013) (77) -------- ------- Net cash provided by financing activities 2,890 3,329 -------- -------

Net increase in cash and cash equivalents 6,084 13,909 Effect of exchange rate changes on cash and cash equivalents (730) (1,897) Cash and cash equivalents at the beginning of the period 29,560 65,913 -------- ------- Cash and cash equivalents at the end of the period $ 34,914 $77,925 ======== =======

Business Segments Unaudited (in thousands)

CNET's primary areas of measurement and decision-making include two principal business segments. CNET has determined that its business segments are U.S. Media and International Media. U.S. Media consists of an online network focused on three content categories: personal technology, games and entertainment and business technology. International Media includes the delivery of online technology information and several technology print publications in non U.S. markets. Management believes that segment operating income (loss) before depreciation and amortization expenses is an appropriate measure of evaluating the operating performance of the company's segments. However, segment operating income (loss) before depreciation and amortization expenses should not be considered a substitute for operating income, cash flows or other measures of financial performance prepared in accordance with generally accepted accounting principles.

U.S. International Media Media Other (1) Total -------- ------------- -------- -------- Three Months Ended March 31, 2005 Revenues $62,304 $12,408 $ - $74,712 Operating expenses 52,731 15,518 6,050 74,299 ------- ------- ------- -------

Operating income (loss) $ 9,573 $(3,110) $(6,050) $ 413 ======= ======= ======= =======

Three Months Ended March 31, 2004 Revenues $52,769 $10,628 $ - $63,397 Operating expenses 47,119 13,868 8,071 69,058 ------- ------- ------- -------

Operating income (loss) $ 5,650 $(3,240) $(8,071) $(5,661) ======= ======= ======= =======

(1) For the three months ended March 31, 2005, other represents operating expenses related to depreciation of $3,915 and amortization of $2,135. For the three months ended March 31, 2004, other represents depreciation of $7,171 and amortization of $900.

Quarterly Statistical Highlights Unaudited Q105 Q404 Q3-04 Q2-04 Q1-04 ------- ------- ------- ------- -------

Total Quarterly Revenue ($mm) $74.7 $89.2 $70.5 $68.1 $63.4

Revenue Distribution (%)(a) Marketing Services 78% 79% 75% 77% 76% Licensing, Fees and User 14% 11% 12% 10% 12% Publishing 8% 10% 13% 13% 12%

Advertiser Metrics CNET Networks Top 100 US Advertisers' Renewal Rate (Q-to-Q) 97% 96% 95% 98% 89% CNET Networks Top 100 US Advertisers' % of Network Revenue 56% 54% 57% 56% 58%

Select Business Metrics Network Unique Users (mm) 105.9 103.0 88.7 74.2 76.5 Network Average Daily Page Views (mm) 94.7 85.0 61.8 41.8 44.2

Balance Sheet Highlights ($mm) Cash $34.9 $29.5 $29.1 $62.6 $77.9 Marketable Debt Securities 42.3 44.4 44.7 71.1 51.6 Restricted Cash 19.8 19.8 19.8 19.8 19.7 ------- ------- ------- ------- ------- Total Cash and Equivalents $97.0 $93.7 $93.6 $153.5 $149.2

Total Debt $146.5 $144.6 $129.3 $129.4 $118.1

Days Sales Outstanding (DSO) 72 67 65 65 66

(a) Revenue distribution definitions are as follows:

Marketing Services - sales of advertisements on our Internet network through impression-based and activity-based advertising.

Licensing, Fees and User - licensing our product database, online content, subscriptions to online services, and other paid services.

Publishing - sales of advertisements in our print publications, subscriptions and newsstand sales of publications, and custom publishing services.

Guidance to the Investment Community

----------------------------------------------- Q1-05 Q2-05 estimate FY 2005 estimate $ in millions, Actual Low - High Low - High except per share -----------------------------------------------

Interactive Revenues $68.5 $75.0 - $78.0 $315.0 - $323.0 Publishing Revenues $6.2 $6.0 - $7.0 $30.0 - $32.0

Total Revenues $74.7 $81.0 - $85.0 $345.0 - $355.0

Operating income before depreciation and amortization $6.5 $11.5 - $13.5 $64.0 - $69.0

Depreciation expense ($3.9) ($4.5) ($19.5)

Amortization expense ($2.1) ($2.7) ($10.5)

Operating income $0.4 $4.3 - $6.3 $34.0 - $39.0

Interest expense, net ($0.4) ($0.4) ($1.5)

Other income (expense) ($0.1) ($0.1) ($0.5)

Tax benefit (expense) ($0.1) ($0.3) ($1.8)

Earnings per share $0.00 $0.02 - $0.03 $0.20 - $0.23 -------------------------------------------------------------------- FY 2005 earnings per share guidance is based on a share count of approximately 160 million shares, of which 8.3 million shares are attributable to the impact of EITF 04-8.

Safe Harbor Statement

This press release and its attachments include forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to differ materially. These forward-looking statements include the statements under the section entitled "Business Outlook," which sets forth our estimated financial performance for the second quarter and full year of 2005, and statements regarding our growth prospects and expectations regarding the future success of our products and services. In addition, management expects to provide forward-looking information statements on the conference call to be held shortly following the issuance of this release, which are also subject to risks and uncertainties that could cause actual results to differ materially. The forward-looking statements in this release and on the conference call are identified by the words "expect," "estimate," "target," "believe," "goal," "anticipate," "intend" and similar expressions or are otherwise identified in the context in which they are made as being forward-looking. These statements are only effective as of the date of this release and we undertake no duty to publicly update these forward-looking statements, whether as a result of new information, future developments or otherwise. The risks and uncertainties that could cause actual results to differ materially from those projected include: a lack of growth or a decrease in marketing spending on the Internet due to failure of marketers to adopt the Internet as an advertising medium at the rate that we currently anticipate; a lack of growth or decrease in marketing spending on CNET Networks' properties in particular, which could be prompted by competition from other media outlets, both on and off the Internet, dissatisfaction with CNET Networks' services, or economic difficulties in our clients' businesses, as evidenced in previous periods by many of our enterprise technology customers; economic conditions such as weakness in corporate or consumer spending, which could prompt a reduction in overall advertising expenditures or expenditures specifically on our properties; the failure of existing advertisers to meet or renew their advertising commitments as we anticipate, which would cause us to not to meet our financial projections; the failure to attract advertisers outside of our traditional technology and consumer electronics categories, which would cause us to not meet our financial projections; a continued decline in revenues from our print publications as advertising dollars shift to other media; the acquisition of businesses or the launch of new lines of business, which could decrease our cash position, increase operating expense, and dilute operating margins; an increase in intellectual property licensing fees, which could increase operating expense, including amortization; the risk of future impairment of our intangible assets, goodwill or investments based on a decline in our business or investments; and general risks associated with our business. For risks about CNET Networks' business, see its Annual Form 10-K for the year ended December 31, 2004 and subsequent Forms 10-Q and 8-K, including disclosures under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Conditions and Results of Operations," which are filed with the Securities and Exchange Commission and are available on the SEC's website at www.sec.gov.

Operating Income (Loss) Reconciliation (in thousands)

Three Months Ended March 31, ------------------- 2005 2004 ------------------- Operating income (loss) before depreciation and amortization $ 413 $(5,661) Depreciation 3,915 7,171 Amortization of intangible assets 2,135 900 ------ ------- Operating income before depreciation and amortization $6,463 $ 2,410 ====== =======

The company believes that "operating income (loss) before depreciation and amortization" is useful to management and investors in evaluating the current operating performance of the company, since depreciation, amortization and asset impairment include the impact of past transactions and costs that are not necessarily directly related to the current underlying capital requirements or performance of the business operations. Management refers to "operating income before depreciation and amortization" to compare historical operating results, in making operating decisions and for planning and compensation purposes. A limitation associated with this measure is that it does not reflect the costs of certain capitalized tangible and intangible assets used in generating revenue. Management evaluates the costs of these assets through other financial measures such as capital expenditures. "Operating income before depreciation and amortization" should be considered in addition to, and not as a substitute for, other measures of financial performance prepared in accordance with US GAAP.

--30--KC/sf*

CONTACT: CNET Networks, Inc. Cammeron McLaughlin, 415-344-2844 (Investor Relations) cammeron.mclaughlin@cnet.com Martha Papalia, 617-225-3340 (Media) martha.papalia@cnet.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: COMPUTERS/ELECTRONICS ELECTRONIC GAMES/MULTIMEDIA NETWORKING INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: CNET Networks, Inc.

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