Marconi, since you confess ignorance to CMGI, I thought I'd shed some light on what investors see in publicly traded VC's. Contrary to popular media, it's not all unsophisticated newbie etraders driving these stocks. FYI, institutional investors, including CitiGroup and Intel, own over 8.5M shares of CMGI.
First of all I have to commend you on you insights into the market. I agree with your assessment of the market reactions and esp. the bit about rates affecting net stocks. Interest rates have more to do with the Dow than the ISDEX. How many inets have debt (1 - AMZN) and how many net stock buyers are looking for 6% APR?
Certainly the enthusiasm over the exponential growth of the internet and the companies that power it has led many stocks to become overvalued in a relative sense. And a lot of buyers do pile on to drive stocks outside their logical trading range. But when I hear Mr. Ginny-Mae on MoneyTalk paint the net sector as overvalued he always uses the comparison of the S&P P/E of 26 to the Internet sector P/E of 200 and (purposefully) neglects to compare projected EPS growth (S&P 7-8% vs. inet 100+%?). Well, he has his audience to consider but I wouldn't call it a sector bubble. By Lynch's model the S&P is 3x overvalued and the internets are not significantly higher. I think this is what Greenspan testified to a few months ago. Anyway everyone has an opinion on net stock valuations and that's mine. Only time will tell but remember Tulips didn't really integrate with and change the world.
As for WCAP's history, WCAP had dropped to $1 under prior mgmt which favored loans to local businesses. When Perlin took over, they shifted strategy to equity investments in promising growth companies with strong mgmt teams. It wasn't until COOL that this strategy paid off. Now a year after COOL's IPO they've amassed an impressive lineup worth $8-11 per share in NAV (current-90 day avg).
While the stock price may be 3x current asset values, keep in mind that valuations for net stocks have great potential for appreciation. More importantly, WCAP can compound its NAV by investing profits in new ventures. As long as WCAP excels at finding promising companies (inet or not), their capital can return 2x-30x on each dollar invested.
So while one may pay 3x current NAV, next year NAV could be 5x higher (fiscal '98 saw a 7.5x increase in NAV). 3x current NAV thereby becomes 3/5 of forward NAV (40% return if future stock price = NAV, 500% return if 3x:3x). Moreover future investors may be willing to pay >3x NAV (or 15x in CMGI's case) as the company establishes its track record and improves its market positioning. With the higher multiple the stock price is propelled even higher, potentially yielding a 1000+% return to the investor. That's how WCAP and CMGI have done it.
As long as WCAP can continue to locate strong candidates for venture capital they will continue to make $ and increase NAV. Nice to see them follow up COOL with WGAT, JWEB, ROWE, MODA, and MPTH. Not a "one-hit wonder" as the naysayers were taunting when I initially bought in last year. Imagine where this stock will be when Commerce One, Vivid SemiConductor, Wedding Network, and Bluestone Software make their debuts and the next crop is sitting on the bench. All IMHO.
Regards,
TJ
PS> The use of "NAV" or Net Asset Value here should be "book value" but I used NAV because most posters are referring to it as such. VC's are not mutual funds. Anyone can buy a stock but few are invited to participate in the private funding of promising young companies. |
