Novice Investing - Rough Revenue Estimation for CNET

Date: Monday 13th 2008f October 2008 06:19:04 PM

Rough Revenue Estimation for CNET - 09/04/2005

By: Hari Wibowo

A while ago, I brought up an example of screening through CNET's annual report to gain a better understanding of its business. Today, I will try to translate that information into revenue prediction. Now, this is a really really rough estimate. However, while it may not be accurate, I feel that this is in the ball park.

In here, I elaborated that CNET has 3 % of all internet traffic. How do I know it? Simple. We can go to www.alexa.com and then type in one of CNET's website there. For example, we can type www. download.com on the web search bar at alexa's main page. It will bring you a profile of download.com. Next, we can click on traffic details. This will show us the reach of download.com to internet audience. For example, on August 28th 2005, download.com has a reach of 6,450 per million users.

We repeat the exercise to other properties of CNET. This includes CNET.com, Webshots.com, MP3.com, ZDnet.com and several others. Based on the data back in August 28th 2005, CNET web properties have a total reach of 29,460 per million users, or about 2.95 % of all internet traffic. What is the current total internet traffic? It is hard to say. Google, which accounts for 30% of all internet traffic, performed 250 million searches daily a few years back. This data is obviously outdated. I am going to assume that the searches performed has increased to 350 million searches now. This assumption may not be accurate but we are going to use it anyway for revenue estimation purposes.

Now, here comes the calculation part. I will treat the number of searches as the number of page views. Therefore, if Google accounts for 30 % internet traffic, then total internet page views for a day is equal to 1166.6 million. 3 % of this goes to CNET's web properties. Total daily page views that CNET has is 35 million.

As always, let's simplify things one step further. Let's assume that CNET derives all its revenue on online advertising. This is the purest form of revenue generation and is the lowest revenue generation for a web site. Offering services such as MP3 subscription will generate more revenue per visitor, in my opinion. So, let's stick with the lower revenue estimation for now.

The most popular online advertising type is pay per click (PPC) advertisement. With PPC ad, CNET made money when visitors click on any ad banners displayed on CNET's web properties. The amount of money made also varies depending on the number of clicks and the revenue per click for each site. Still with me so far? Good.

From this source, average keyword price is $ 1.72 per click on July 2005. Finance investing keyword is $ 1.73. This means that for each click, CNET will earn on average $ 1.72. I am quite aware that keyword price fluctuate between months. Furthermore, I believe CNET will garner more dollars per click due to its premier status. It is not just some small websites from Bangladesh or South Africa. It owns several above-average websites with excellent domain names. But then again, for conservative estimate, let's use $ 1.72 for CNET's average click.

We know that CNET websites has approximately 35 million page views per day. But how many clicking do its visitors really do? Not every page view will translate into clicks. Let me introduce you to the term Click Through Rate (CTR). What is CTR? CTR is the percentage of page views that translates into clicks. If CTR is 1 %, then for every 100 page views, there will be one visitor that clicks on an ad once.

With a CTR of 1%, CNET will have 350,000 clicks daily. (1% of 35 million page views). Earlier, we know that average price per click is $ 1.72 on July 2005. CNET's daily revenue is therefore: 350,000 click x $1.72 per click = $ 602,000. From daily revenue, CNET's annual revenue is therefore: $ 219.7 M. Is this accurate? Well, in 2004, CNET has a revenue of $ 291 M. This is not a bad estimate considering that summer months are generally slower period for internet traffic.

END

Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding CNET Networks Inc. (CNET), Google Inc. (GOOG) or other securities.

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