Motley Fool
ICGE Remix
Wednesday September 7, 1:56 pm ET
By Tom Taulli
Wasn't Internet Capital Group (Nasdaq: ICGE - News) supposed to be just a bad dream? A dot-com darling that died because of a flawed business model? Well, these days it seems the company is alive and, by some accounts, even doing well. In the past year, the stock has gone from $5.34 to $8.34. Actually, yesterday the stock surged 6.11%.
Founded in 1996, ICG was one of the first Internet incubators. That is, it provided seed funding to companies and then mentored them through to an IPO or acquisition.
Yesterday, ICG showed that it can deliver on its business model when it sold one of its portfolio companies, LinkShare, to Rakuten Inc. The price tag was a mouthwatering $425 million in cash. Given ICG's 40% ownership of LinkShare, ICG snagged roughly $150 million. 10% of the purchase price will be held in escrow for one year.
LinkShare was a company benefiting from the surge in online advertising. Basically, it develops tools that track, manage, and analyze online affiliate marketing programs. Affiliate marketing allows merchants to sell their goods on other websites (known as affiliates). The pioneer is Amazon.com, which developed an affiliates program to sell its books on other sites. Clients include such giants as J.C. Penney (NYSE: JCP - News), American Express (NYSE: AXP - News), Avon Products (NYSE: AVP - News), and Dell (Nasdaq: DELL - News).
Rakuten provides the services most portals do -- email, community, e-commerce, and so on. But the company recognizes that affiliate marketing appears to be poised for strong growth in foreign markets and, as such, has its sights on Japan.
Before the sale of LinkShare, ICG had $83 million in cash and liquid assets, which provides some cushion against otherwise unforeseen events and a bit of liquidity. What's more, ICG has eight core portfolio companies left (on average, it owns over 50% of the equity). These companies include CreditTrade, which is a trading platform for the credit markets, and StarCite, which is a software supplier for the travel industry.
But we'd do well to take a look at the nitty gritty. Some part of recognized revenue (or losses, as it may be) derives from companies the parent (ICG) has invested in, due to accounting convention. On account of its operating structure (the company is effectively a venture capital firm), this revenue is not likely being recognized from a cash standpoint. This setup creates murky waters from an analytical standpoint, seeing as how we're hard-pressed to determine what actually accrues to the company.
In a way, ICG is a public venture capital (VC) firm. And for the most part, such investments are not available for individual investors due to the high risks. But given ICG's experience and hefty cash position, the company is certainly a viable option for investors looking for some exposure to venture capital returns.
The question, therefore, is whether the management team is strong enough to merit any credibility. 'Cause it's not much different from any other VC in that the underlying strength of the company/projects is, in effect, tied to the manager's prowess. Good managers generally choose strong concepts, and bad managers...well, you know the drill.
Fool contributor Tom Taulli does not own shares mentioned in this article. |
