Tag - Cnet

After a recent high-profile buyout announcement in the same sector, it may be time to kick the tires of long-time underperformer, but cash rich small cap SourceForge, Inc. (Nasdaq:LNUX).

In mid-May, online tech news and information provider CNET Networks Inc. (Nasdaq:CNET) agreed to be acquired by CBS Corp. (NYSE:CBS) for $1.8 billion. The price paid for CNET represented a hefty 45% premium over its stock price the day before the deal was announced. The CBS take-out of CNET followed months of pressure by a group of CNET shareholders to sell the large, but struggling, company. The CNET announcement could place pressure on the remaining, small publicly held Internet media companies to find merger partners.

One such name is $92 million SourceForge. Formerly known as VA Software Corporation, SourceForge changed to its new corporate name last year after the sale of its software business to CollabNet. The Mountain View, Calif.-based company’s remaining operations include its namesake SourceForge.net website, which hosts more than 170,000 open source software projects. SourceForge also runs IT community and news-focused websites Slashdot.org, Linux.com, FreshMeat.net, ITManagersJournal.com and NewsForge.com. SourceForge also operates a niche e-commerce operation called ThinkGeek.com. All told, SourceForge claims that its network of websites reaches 32 million unique visitors each month. 
 
While SourceForge has a strong position in a valuable segment of the online media space, serving technology professionals and enthusiasts, it has been unable to translate this position into sustained profits. SourceForge management has attracted a reputation in recent years for unfulfilled promises and missed guidance. After SourceForge reported another quarter of disappointing results at the end of May, Trivium Capital, the company’s second-largest shareholder, called on SourceForge to either seek strategic alternatives or announce a significant stock buyback. Trivium pointed out that SourceForge, as of the most recent quarter, was sitting on a cash position of $0.82 a share with “possibly” another $0.10 a share in value from its stake in CollabNet. On Monday, SourceForge established a new 52-week low . . .

In these days of 16-letter domain names, you know that a company with a name as simple as Web.com is an original dot-commer. The problem has been that Web.com, which offers software to help small companies create their own websites, has rarely managed to eke out a profit.

On the other hand, much younger competitor Website Pros, Inc. (Nasdaq: WSPI), of Jacksonville, Fla., has managed to produce good growth and decent, if not spectacular, profitability. Both companies are focused on small- to medium-sized businesses (SMB), the markets where there is still substantial growth as more of them eschew Yellow Pages and go online.

So what happens when the newer company acquires the older one? A boost in stock price and hopes of a much more exciting company in 2008.

Website Pros completed its $129 million stock-and-cash acquisition of Web.com last quarter. As a wholly-owned subsidiary of Website Pros, Web.com keeps its domain name and business. Website Pros announced mixed results for its first quarter as a combined company on Nov. 6. Revenues were in line with Wall Street expectations at $17.8 million, up by about 48% from a year ago, and pro forma EPS, at $0.15, up from $0.11 a year ago, exceeded estimates by a penny or two.

On the downside, Website Pros added just 1,300 net subscribers in the quarter, for a total of 82,000 compared to an increase of 4,000 subscribers in the previous quarter. Web.com, however, increased its subscriber base by 7,300 (compared to 7,200 in the second quarter and 3,500 in the first) for a total of 173,000 subscribers.

That’s where investors see the synergy between the companies. Web.com’s customer base provides lower profit margins but is growing faster. That creates the hope that Website Pro will be able to sell more expensive services to the new customers, and keep some of its own subscribers from dropping out by offering them cheaper, do-it-yourself services from Web.com.