Some secrets are too big to keep. That appears to be the message Wall Street sent to CNET management Friday, as the Internet media company's stock plunged more than 20 percent - down 4 5/8 to 18 1/4 - after its first-quarter earnings report late Thursday. And Wired News has learned that the cause may be a project with the code name "Gunsmoke."
Wall Street analysts who follow the company set off alarm bells with their reports on the company's results. William Gurley at Deutsche Morgan Grenfell and Mary Meeker of Morgan Stanley warned investors that they were given few details to explain the large sums devoted to a secret project under way at CNET. Still, the two maintained their CNET ratings as "buy" and "outperform," respectively, in reports released prior to the start of Nasdaq trading Friday.
CNET said it spent US$2.2 million in the first quarter on "development and sales and marketing expenses related to a new, unannounced online venture." The company promised it would provide further comment sometime during the second quarter, but refused to supply additional information. Gurley wrote that "risk-averse investors may wish to consider alternative investments" because of uncertainties inherent in the project.
Wired News has confirmed that a number of employees have been hired by CNET in recent months to work on a secret project codenamed Gunsmoke. It is unknown whether this project is directly related to the stealth project described in the earnings report; however, employees on the Gunsmoke project have been working under highly secretive cirumstances.
As many as a dozen editors associated with Gunsmoke are producing hundreds, if not thousands of capsule summaries of Web sites across a broad range of subjects. Freelance writers hired by these editors have been asked to produce summaries of 10 to 15 words in length that are free of opinion; some freelancers have also been assigned longer site reviews - up to 70 words in length. But sources familiar with the work suggest that these summaries are not intended for use in an editorially based project, such as CNET's Cnet.com or News.com Web sites.
Employees on the Gunsmoke project have refused to disclose details to friends or even family members. Asked for comment on Gunsmoke late Thursday, a CNET spokeswoman replied emphatically, "I don't know what you're talking about."
