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Jacoby Reacts To CBS/Last.fm Deal
Bank of America securities analyst Jonathan Jacoby has reaction to CBS acquisition of Last.fm. Jacoby writes of the music and networking website: “We believe that Last.fm is currently running at a slight operating loss, but should be profitable by the end of next year.”
Jacoby continues, “CBS will continue to return capital to investors, but some cash will be allocated to selective acquisitions. Investors that expect CBS to return all of its excess cash might be disappointed. Although we believe that CBS will continue to return FCF (as demonstrated by its $1.4B buyback in March), today’s (Wednesday’s) announced acquisition combined with other recent investments (e.g., Wallstrip, SpotRunner, Joost) indicates that the company also is pursuing select acquisitions.
“Where does Last.fm fit in the Web 2.0 world? Our view is that the onus will be on CBS to define Last.fm’s positioning. We are a bit unsure as to where Last.fm fits in the Web 2.0 landscape, as it is a mix of a music player and social networking site. Currently, Last.fm is the 11th globally ranked music site and the 34th globally ranked social network. The CBS press release seems to indicate that the focus is on the social networking side, rather than the music aspect. The major players in the social networking arena seem to have a significant lead, and we wonder how Last.fm will position itself in the evolving space. To be fair, the price tag is indicative of a development project rather than a fully established player (e.g., Yahoo’s $2B offer for Facebook).”
Jacoby’s investment thoughts: “Reiterate Neutral. Our valuation analysis suggests that there is limited upside to the stock. Furthermore, we believe that CBS’ key operational segments could disappoint in 2H07.”
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