CMGI ( CMGI: Quote | News | Boards )
We included CMGI (then called CMG Information Services) in our 1998 Magic 25 portfolio because of the company's strategy of investing in fledgling Internet companies, then cashing in on their IPOs. Investors came to think of CMGI as an Internet mutual fund, and that year shares returned 580%. CMGI's pipeline of promising IPOs was so full that we let our winnings ride in the 1999 Magic 25, and we were not disappointed--as of November 9, shares were up 462%. The investment thesis for 2000 has evolved, but we are once again betting on CEO David S. Wetherell's vision for the Web.
Now that CMGI has amassed a portfolio of some 50 properties, including the Raging Bull investor chat room and the Ancestry.com genealogy site, it can combine them under one big roof on the Web, luring surfers and, we think, advertising dollars. CMGI will also benefit when those visitors make purchases from its e-tailers, including Furniture.com and Shopping.com. The glue that holds those disparate ventures together will be AltaVista, the second largest portal (behind Yahoo!), which CMGI acquired in August. To attract visitors to its site, CMGI has launched a redesign, integrating many of its properties and expanding AltaVista's search capabilities.
But if people come, can CMGI make money off them? Although Web-based advertising is expected to grow nearly tenfold by 2004, to $33 billion, as reported by market researcher Forrester Research, no company has figured out exactly how to take advantage of that growth. But CMGI has an advantage. For years, through its Engage Technologies subsidiary, CMGI has been tracking users' behavior, creating profiles of Web surfers. And in September, it laid out $1.4 billion to make three acquisitions: AdForce, AdKnowledge, and Flycast Communications. Those companies bring CMGI the technology and expertise to provide advertising services to both sellers (Web sites) and >> buyers (companies trying to market their products and services).
AdForce helps sellers deliver ads, taking care of all the technical headaches that go along with fulfilling that service; AdKnowledge helps buyers identify the best sites for reaching their target audience and also measures the effectiveness of ads; Flycast is a network that links up buyers with sellers by seeking out excess ad space.
Investors, worried the market for Internet IPOs might dry up, will no doubt be watching closely to see if CMGI's new ventures can deliver meaningful revenue. But until ad revenue starts flowing, CMGI isn't giving up on the IPO game. In January 2000, it plans to spin off part of AltaVista, and a slew of other offerings are planned for later in the year. Based on comparisons with Yahoo!, AltaVista will probably be valued at more than $12 billion, compared with $46.8 billion for Yahoo! (Yahoo! has more than three times the audience of AltaVista, according to Media Metrix). But AltaVista will likely soar much higher if recent improvements to the site substantially increase traffic. CMGI is not abandoning its old business model, and judging from the performance of the past two years, we know that it is a recipe for big gains. --David Sterman
Steve |
