CMGI Restructuring to Stem Stock Slide
CMGI Inc., one of the most voracious buyers of Internet-related businesses, announced plans Wednesday to sell off some companies and will scrap plans for billions of dollars in new venture capital investments.
The retrenchment comes after CMGI’s Internet buying spree transformed it into one of the top Nasdaq performers of the late 1990s. But CMGI’s stock has plunged nearly three-fourths in value since its January high, dropping $35 billion from the company’s market value.
Analysts said CMGI’s plight illustrates the dire straits of Internet holding companies and incubators as investors continue to shy away from “dot-com” firms.
CMGI Chief Executive David Wetherell said in an interview that the Andover, Mass.-based company is negotiating to sell “more than one” of its 17 majority-owned units and that five have been earmarked for possible disposal.
“There are no sacred cows,” he said. He also told investors that CMGI will begin reporting revenue and income in six categories to make clear which operations are profitable and when other parts might get there.
In the past year CMGI announced plans to contribute as much as $3.5 billion to new venture funds. However, on Thursday, the company said it’s scrapping one of those planned funds and will combine the others while limiting its investment to $25 million a month.
In the two years after January 1998, the stock multiplied more than 96-fold. CMGI has invested in dozens of firms, including search engine AltaVista, e-mail service provider Critical Path and online advertising agency AdForce. Part of CMGI’s strategy is to build a vast database of the buying habits of anonymous consumers as a way to target advertising and sell products.
“When things were really hot in the Internet, it was a good business to buy and sell these businesses,” said U.S. Bancorp Piper Jaffray analyst Safa Rashtchy. “Now that’s gone and the question is being asked, ‘What’s the point of it?’ ”
Other publicly traded Net holding companies, including Internet Capital Group, are also trading at fractions of their values in March, when a deep slide in Internet stocks began.
From a high of $163.50 earlier this year, CMGI stock closed Thursday at $43.19, down $3.50 on Nasdaq.
As some of the biggest Internet names have seen their stocks slide, a multiplier effect has hurt even more Internet holding companies and incubators, which help the youngest start-ups. Idealab, the Pasadena-based incubator, has delayed its IPO, and smaller Internet incubators are beginning to disappear.
“I have not seen a successful incubator that really focused on one area and was able to offer something more than capital,” said Rashtchy of U.S. Bancorp.
But Wetherell insists the consolidation at CMGI will help investors see the firm as an operating company, not an investment fund. He said CMGI will stay active in almost every aspect of the Net, from interactive advertising and entertainment to infrastructure and consulting.
Although CMGI has reported profit from its investment gains in the past, in the past three quarters the company has lost more than $700 million in losses in the last three quarters.
However, in the fiscal third quarter ended April 30, CMGI lost $428 million on revenue of $226 million.
Wetherell said the changes are aimed at getting the company’s units and the overall business profitable more quickly, although he wouldn’t say when that will occur.
“It’s probably much sooner than most people think,” he said.
Wetherell said that each of the six new lines of CMGI’s businesses might end up as a single company with the potential to go public when the markets revive. As they consolidate internally, layoffs are expected even as total CMGI employment grows.
Wetherell said search engine AltaVista, which delayed its IPO after Internet stocks began sliding, is not among those on the block. He said AltaVista will be profitable by the quarter that ends in January and may refile its IPO shortly before or after that.
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Net Losses
CMGI Inc.’s shares (ticker symbol: CMGI) have fallen 74% from their 52-week high and are no higher today than a year ago.
Monthly closes and latest on Nasdaq
Thursday: $43.19, down $3.50
Source: Bloomberg News
