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We’re recommending shares of CNET.� I picked up some shares last week at around $9.30 per share.� I purchased about half of what I expected to me my total position – thinking the stock could sell off a bit if the overall markets continued to stay weak into the first few weeks of June.� Looks like I may have the opportunity to average down a bit as the shares closed yesterday at $8.91.

Company Overview:
CNET Networks is a global media company with significant online assets focused on three categories: personal technology, games & entertainment, and business technology. Its personal technology segment includes sites such as CNET.com, Download.com, and Webshots. Its games & entertainment segment includes sites like GameSpot, MP3.com and TV.com. And its business technology segment includes brands such as ZDNet, and News.com. more

Why We Like It:
*Great collection of websites, including GameSpot, a “hidden gem” (#2 gaming site behind IGN Games)
*It’s a dotcom survivor (made it through� the bursting of the tech bubble)
*It’s one of the few remaining large, pure-play web content companies
*It’s down 45% from its 52-week high of $16.09
*Reasonable valuation: at $8.91 per share, 150 million shares outstanding, and $12 million of net debt, CNET has a total enterprise value of roughly $1.3 billion.� CNET will generate around $90 million in EBITDA this year (company guidance and Wall Street consensus estimates).� So, CNET is trading at 14.8x 2006 EBITDA.� If you factor in net operating loss carryfowards (Smith Barney estimates that CNET has tax loss carryfowards worth, in net present value, $0.59 per share) then CNET is only trading at 13.8x 2006 EBITDA.� With cash flow growing at 25-30% per year that’s a reasonable valuation. Further, given where acquisition multiples have been (see below), there’s ample downside support for the stock (relative to the overall market).�

Two final points worth mentioning:

First, the not-so-good:� CNET announce in May that it is one of several companies under investigation by the SEC for allegedly backdating stock options granted to executives, making them more lucrative. This announcement came two days after the company announced an internal probe into the matter.� This shouldn’t have a material impact on the company, although it may preclude potential acquisition overtures until the matter is resolved.

Now, the good:� Web 2.0 tracker, TechCrunch, pointed out last week that CNET very quietly launched a simple new photo uploading site called AllYouCanUpload.� TechCrunch’s take: “At first glance it doesn’t appear to be very special or disruptive. But it is.”� Read on for the full story.