boston.com
From Boston Globe:
Despite market cooling, CMGI
still optimistic
Andover firm's access to cash, skill at picking
Net prospects keep investors enthusiastic
By Steven Syre and Charles Stein, Globe Staff , 06/10/99
Air whistled out of Internet stocks a few weeks
ago, and investors who have made money
hand over fist began to wonder out loud whether
the party was over.
It would be a sad turn of events for your
neighborhood day trader. But what about a
company whose entire business is based on the
ability to fund and nurture young Web enterprises,
often leading to an initial public stock offering?
What about CMGI Inc., the Andover company that
has 40 young Internet companies based in New
England and around the country under its
investment wing?
It's a question sure to come up in many discussions
next week, when CMGI makes presentations to
large investor conferences hosted by U.S. Bancorp
Piper Jaffrey on Monday and Bear Stearns Co. on
Tuesday.
Those investors will surely hear a version of the
official CMGI line: a tougher, more discriminating
Internet stock market will highlight the strength of
the company's system.
CMGI has access to plenty of money and doesn't
have to rush a young company onto the public
market before its time or under difficult conditions.
Its established skill at picking evolving Internet fields
will stand out when the market no longer writes
blank checks for young Web ventures.
Another plus: the CMGI portfolio's keiretsu-style
business relationships interwoven among
companies. In one case, Web site Ancestry.com got
funding from CMGI and subsequently outsourced
its site-hosting chores to fellow portfolio company
NaviSite and used Adsmart, another CMGI-backed
venture, to find advertising.
But most important to CMGI, the Internet itself no
longer has anything to prove.
''We've never been more optimistic about the
Internet business in general,'' said Bill White,
CMGI's marketing director. ''We no longer think it's
a decision about the Internet economy. It's about
the economy.''
CMGI has had its share of wild success helping
Internet companies go public. Its biggest score was
the 80 percent of Lycos Inc. it purchased for $2
million in 1995. Now drastically reduced to about
20 percent by a 1996 IPO and subsequent stock
sales, the stake is still worth more than $500 million.
CMGI has millions more to invest in new
companies and reviews about 1,000 business plans
every month. ''That says there's no shortage of
quality companies,'' said White.
Investors will also see the IPO short list inside the
CMGI investment portfolio, 14 companies
considered candidates for public stock offerings
over the next 24 months.
That list is an eclectic mix of Internet enterprises,
including retailers, a business-to-business seller,
marketing companies, and Web infrastructure
providers.
Two of the companies have already filed papers to
start the IPO process and brought blue-chip
underwriters aboard to handle the offering. An
offering of Chemdex Corp. shares will be managed
by Morgan Stanley Dean Witter and Goldman
Sachs will lead the IPO of Engage Technologies
Inc.
Analysts like Ullas Naik of First Albany Corp. think
both Chemdex and Engage Technologies have the
potential to be hot IPOs. But two recent
CMGI-related stock offerings, though higher than
their initial price, have fallen steeply off their highs.
Silknet Software Inc. went public at 15 per share
last month and soared to about 50 over its first
weeks, but has since slipped back to 317/8.
Critical Path Corp. hit the market at 24 per share in
March and rocketed to about 150 within two weeks.
It finished yesterday at 483/4.
The softer Internet IPO market ''certainly has an
impact and I think you're seeing a little of that in the
[CMGI] stock price,'' said Naik. ''The demand for
new Internet-related IPOs waned and that was
reflected in CMGI's market capitalization.''
CMGI stock, which peaked at a split-adjusted 151
per share in April, recently dipped below 100. It has
bounced back to finish yesterday at 1051/4.
Don't get the idea CMGI is turning into a value
stock. The company has a market value of $9.8
billion, while the public shares of Internet
companies it holds amounts to $1.7 billion. That
means investors are putting a value of about $8
billion on CMGI's private investments under
development and its ability to raise winners in the
future.
Institutional investors who are CMGI fans aren't
very worried about the recent price slide.
''Companies like CMGI have to be valued on what
they will do over the next three to five years,'' said
Fred Kobrick of Boston-based Kobrick funds. ''I
think [the recent stock decline] is totally irrelevant
to CMGI, even if it might buffer the stock price,
because its mission is to bring out really great
companies that will evolve into not just decent IPOs
but another Lycos every two or three years,'' said
Kobrick.
CMGI invests in new Net firms either as majority
owners - typically reserving 20 percent of the stock
as incentives for managers - or through a series of
venture funds it oversees. The first two CMGI
At-ventures funds each invested about $35 million
of company money. The third fund raised $287
million, mostly from outside investors.
CMGI portfolio companies that could go public over
the next two years run the full gamut of venture
funds and majority interests.
They include:
Chemdex, which sells scientific supplies directly to
labs. Naik and other analysts consider it a model of
Web business-to-business ventures.
Engage, a marketing firm that can track preferences
of individual Internet visitors for clients.
MotherNature.com, a high-profile retailer of natural
health products.
Raging Bull, a popular financial information and
bulletin board site.
Furniture.com, an on-line furniture retailer
highlighted in this column last month.
Ancestry.com, a Web site that combs databases to
help visitors track their geneology.
NaviSite, an outsourcing company that hosts Web
sites. It attracted additional investments on Monday
from Dell Computer Corp. and Microsoft Corp.
ICast, a broadcasting venture recently launched with
former NBC Television Network president Neil
Braun.
CMGI officials declined to discuss the prospects for
individual investments, but said they had no doubt
the stock market would welcome new firms as they
mature.
''We think the IPO route will continue to be
extremely available for quality companies that are
ready,'' said CMGI's White.
The Red Herring
A place of her own: Karen Schwartzman, a former
BankBoston Corp. spokeswoman who left the
institutional world last fall for public relations
agency Fleishman-Hillard, is working for herself
now. Her Polaris Public Relations is up and running
in Boston.
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