Stock of the Day - CMGI
Feb 22, 1999
CMGI: The Diversified Net Play
If you're the risk-averse type who'd like to take a flyer on an Internet stock but don't want to
tie your fortunes to a single unproven company, you may be in luck. CMGI (Nasdaq:CMGI
- news) , a company that invests in Internet and interactive-media start-ups, may be your
ticket to investing in the Internet sector. The company, which has investments in more than 30
private and public Internet concerns, may be a smart way to gain exposure to this sector, while also providing protection to the
individual investor who can only afford to invest in just one or two Internet names.
In its first Internet venture five years ago, the company created a Web-based subsidiary called Booklink Technologies. It
quickly gained attention, and America Online (NYSE:AOL - news) bought it for $30 million in stock. Ten months later, CMGI
sold its shares of AOL for $73 million.
Flush with cash, CMGI founder David Wetherell decided to launch @Ventures, a venture capital firm. What he ended up with
is largely what the public sees today: A company that looks and smells like a venture capital firm, except that it's a
publicly-traded company that ordinary folks can invest in.
And invest in the company they have. The company has seen its shares go from as low as $10 to as high as $155 over the last
year. And even though its shares have retreated a bit recently, they are still highly valued, fetching $109 as of Friday's close. The
value of its shares, no doubt, have largely risen due to many of its investments hitting paydirt. One of its investments, GeoCities
(Nasdaq:GCTY - news) -- which CMGI initially invested $5.8 million back in January 1996 -- recently agreed to be acquired
by Yahoo!, meaning that CMGI's stake in GeoCities is worth a cool $1 billion, or $994 million more than it originally paid.
Of course, that's not the only homerun for CMGI. Lycos (Nasdaq:LCOS - news) , the Internet search-engine company, is also
a large holding of the company. Its original investment of about $5 million is now valued at nearly $770 million, based on the 8.8
million shares that it still owns. And if CMGI has its way, these winners won't be their last.
The company now has investments in more than 30 companies, all of which have the potential to go public somewhere down
the road. Names like Blaxxun, ThingWorld.com, Silknet and Ancestry.com, ADSmart, NaviSite, Planet Direct and ZineZone
may not be household names now, but CMGI believes they eventually will be. And there's no reason to think they won't.
Still, there's no guarantee that everything will always work out for CMGI, especially if the Internet sector turns sour, or if, as
some people contend, the Internet is a bubble and many companies are cut to shreds and valued at just a fraction of their
current prices. But some worry that CMGI investors need to keep in mind that market risk isn't the only thing that could plague
it. Since its president and founder is the one with the Midas touch, there is always the worry that he may call it quits. He "has
really demonstrated he can recognize trends before anyone else," says Sherri Wolf, an analyst. But "if anything were to happen
to David (Wetherell), I would tell people to sell the stock immediately." To be sure, no one is suggesting that Wetherell is
resigning.
Some of CMGI's biggest backers, in fact, are betting that Wetherell will be around for a long time. Microsoft (Nasdaq:MSFT -
news) , Sumitomo, and Intel (Nasdaq:INTC - news) all have sizable stakes in CMGI, showing their confidence and faith in
CMGI's business prospects.
Judging by CMGI's recent stock price, it looks as though investors piggybacking on Wetherell's winning streak are betting that
his stock-picking prowess won't be coming to an end anytime soon. Indeed, with a personal stake in CMGI of 20 percent,
Wetherell has every reason in the world to keep it going as well.
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