INDIVIDUAL INVESTOR/Analyst: Alex Yakirevich Update 8/4
Updated 8/4/98 with CMGI at $66.63. CMG INFORMATION SERVICES INC invests in
and integrates Internet, interactive media and
database technologies.
We're Upgrading CMGI
to Buy; Buy (8/4)
CMG Information Services
(NASDAQ: CMGI) shares rose 4%, to
$66.63, following the announcement of the
sale of PlanetAll, one of CMGI's holdings.
CMGI traded as high as $68.00 in today's
trading on a day when the broader market
got crushed.
CMGI's CMG@Venture II subsidiary sold its 25% stake in PlanetAll to
Amazon.com (NASDAQ: AMZN). PlanetAll is a provider of contact
management services, such as an address directory and a reminder service
on the Web. CMG@Venture II will receive 225,000 shares of
Amazon.com restricted shares ("restricted" means that CMGI will be able
to start selling these shares in the beginning of November). Based on
Amazon.com's current share price of $110, the deal represents a 400%
return on CMG@Ventures II's total $5 million investment in PlanetAll.
This announcement follows the sale of CMGI's 34% investment interest in
Reel.com, a Web-based video store, to Hollywood Entertainment
(NASDAQ: HLYW). Following the transaction, CMGI will own 5 million
shares of Hollywood Entertainment at an average price of $13.75 per
share, or a $69 million total position. CMGI's original investment in
Reel.com was only $6.9 million, which means that the company realized a
900% return on the investment.
Successful Strategy
These transactions reveal how CMGI's stock has been driven to current
valuation levels. CMGI invests in leading Internet players and is able to
realize incredible returns on its investments through spinoffs and stock
swaps. CMGI's biggest winner to date is the 8,900% return on its original
investment in Lycos (NASDAQ: LCOS).
Assuming that CMGI can earn 30 times on its private investments, the
potential value of its holdings, excluding taxes and the value of Lycos,
GeoCities, Engage/Accipiter, Reel.com, SalesLink, and PlanetAll, is $690
million. Add the value of the companies that have been excluded plus
CMGI's cash balance of $49 million, and CMGI's total valuation is about
$1.6 billion, or $70 per share. Note, that our model values GeoCities at its
expected IPO price of only $13. Considering the success of some recent
IPOs, such as that of Broadcast.com, however, there is substantial upside
to this price.
The new valuation of CMGI does not mean that our old model was
incorrect. The old model valued CMGI's holdings as private companies.
However, with the latest announcements, CMGI has earned a track record
of unloading its private holdings at substantial premiums. This ability
warrants a substantial upward adjustment in price of CMGI.
Upgrading CMGI to Buy
We upgrade our recommendation of CMGI to Buy, from Sell, based on its
ability to establish terrific returns on investment on its venture capital
investments.
Analyst: Alex Yakirevich
Updated 8/4/98 with CMGI at $66.63.
Recommended 11/18/97 at $10.88
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