Five Internet Stocks to Avoid

CNet

I never figured out the attraction to CNet(CNET Quote). The company started out as a cable TV channel for computer users (huh?) and quickly became a portal for software and Internet news. I believed the site had a chance with Download.com, which was a great site for downloading the latest shareware.

However, with Download.com's recent move into online photo-sharing, I'm not sure I understand the strategy going forward, and I doubt a potential buyer of CNET would, either.

Recently, CNet's share price has spiked to 52-week highs on rumors that it is going to get bought. Perhaps it will get bought, given the recent traditional media company splurge for second-rate Web sites. But a company is going to have to pay at least $2 billion to give shareholders any premium, while paying back the $150 million in debt. And with net income at $9 million, I just wouldn't bet on it.

Mamma.com

I ran into the Mamma.com(MAMA Quote) guys at an Internet World conference a few years ago and asked them what their advantage was over any other Internet search engine. Their reply was that they had very few links on their site, which "made the search engine faster." Whatever.

This site has been around longer than Google(GOOG Quote) (the site reads, "copyright 1996-2005") and generated an entire $15 million in revenue over the past 12 months. Somehow, it pulled off a $17 million PIPE financing last June to keep itself alive, but I don't know if any of those investors will make the same mistake twice.

RealNetworks

I own RealNetworks(RNWK Quote) stock, by virtue of having been an investor in Listen.com, which was bought by RealNetworks. But I can't recommend it. My one hope in holding it has been that somehow, Microsoft(MSFT Quote) will find it in the goodness of its heart to settle RealNetworks' lawsuit.

That said, the software, in my opinion, is worse than Microsoft's, and every time I try to use it, I need to download the latest version of RealNetworks' software -- and it still doesn't seem to work on whatever media file I'm trying to play. I give up.

Google

For most of my prior Internet picks (see "Nine Easy LBOs" or "Five Buys for the Internet's New Day"), I like to have a good margin of safety. I look for things like cash in the bank, little debt, increasing cash flows and a single-digit multiple of enterprise value over cash flows. Google has every item but the last.

It's a great company, perhaps the best, and it's here to stay. But if the market starts to experience some volatility in the coming months, I don't see how Google's share price will support itself here.

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Please note that due to factors including low market capitalization and/or insufficient public float, we consider iVillage and Mamma.com to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

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