Investors Looking Past CNET’s Problems

After what could only be considered an abysmal summer, shares of CNET Networks (CNET) may finally be giving investors something worth buying into. The company operates a variety of websites, each with a different focusâÂ?¦and name. But, in terms of monetization, they all work about the same. Unfortunately, none of them were working well enough between April 24th and July 20th to keep investors interested, as the stock fell from $13.27 to $7.25âÂ?¦a 45% slide. Now, however, the market may see undervalued shares of a still-great company. Shares presumably fell in response to an informal inquiry of the accounting practices used to grant stock options to employees. On June 27th, the company received a subpoena over what was uncovered within the inquiry. As a result of the inquiry, and with a potential earnings restatement in the works, CNET decided to delay their required quarterly filing with the SEC. Of course, on August 16th, the SEC countered with the threat of delisting CNET shares. Tough times for CNET shareholders? Based on the news, one would think so. Ironically, however, CNET shares have made strong gains since July 20th, rising from $7.25 to Thursday’s closing price of $9.44âÂ?¦a 30.2% gain. And even more stunning is the fact that neither the options inquiry nor the SEC’s threat has been resolved. Yet, shares are on the rise all the same. Traders are describing the de-synchronization of the news and the chart as not atypical. Often, the price of a stock predictively ‘builds in’ the worst-case scenario well before that scenario actually plays out. In this instance, CNET’s worst case scenario would be getting delisted. The market felt delisted shares were worth no less than $7.25 – the closing price of the last day of the downtrend. The next day was the beginning of a recovery. From here, the marketplace is pricing more current news into CNET’s shares. The company recently announced a major upgrade for its site webshots.com, and added that video sharing capabilities would be coming soon. The initiative is a direct response to sites like MySpace.com, which is owned by NewsCorp. (NWS), and Yahoo’s (YHOO) Flickr. Regardless of whether or not the revamped site enhances earnings, the market is not regarding the company in the same pessimistic light it was for most of the summer.

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