Update from Individual Investor Online iionline.com
CMGI's Fiscal 1998 Results: Buy (9/29)
On September 24, CMG Information Services (NASDAQ: CMGI) announced results for its fourth quarter and fiscal year 1998. Fourth quarter revenue jumped 27%, to $28.1 million, compared to the fourth quarter of fiscal 1997. On a sequential basis, revenue increased 38%. For the year, revenue rose 29%, to $91.5 million, compared to last year.
Results were driven by 91% sequential growth in sales generated by the investment and development business, which includes Engage/Accipiter, NaviSite, Planet Direct, and a number of other Internet holdings. The fulfillment services segment delivered 37% sales growth.
As a result of a 56% jump in cost of sales and a 34% ramp up in general and administrative expenses, the company's operating loss -- excluding a non-recurring charge for acquired in-process research and development -- widened in the fourth quarter to $20.7 million, from $14.1 million in the year-ago period and from $14.3 million in the third quarter. On an annual basis, the operating loss expanded to $60 million, from $51.8 million in fiscal 1997.
Due to expanded operating losses, CMGI's fourth quarter net loss increased to $1.89 per share, excluding gains realized on sale of investments, compared to a loss of $0.70 per share registered a year ago and a loss of $1.11 per share in the previous quarter. For the year, the company's loss expanded to $4.55 per share from $2.54 per share last year.
Despite widening operating losses, CMGI's investment premise remains intact.
CMGI continues to deliver on its strategy of investing in companies with promising Internet technology at rock-bottom prices, growing their businesses, and taking them public or selling ownership stakes to third-parties and realizing incredible returns.
To illustrate how successful CMGI's strategy is, look at the recent sale of PlanetAll to Amazon.com (NASDAQ: AMZN). CMGI realized a 520% gain on its original investment of $4.5 million. Moreover, CMGI earned 4200% on the total $5.9 million investment in GeoCities (NASDAQ: GCTY), which completed its IPO in August.
Companies in CMGI's portfolio continue to sign new deals and exhibit strong performance. In the fourth quarter, in a move to strengthen its line of Web hosting services, NaviSite acquired Servercast Communications. The company will also provide electronic commerce services to Web hosting customers with the software licensed from Open Market.
During the fourth quarter, Engage Technologies set up a joint venture with Sumitomo Corp. to offer Engage's database of anonymous Web user profiles to Japanese businesses. In addition, Planet Direct, a Web portal, said on September 28 that Compaq Computer (NYSE: CPQ) will use Planet Direct's Web page as a default Internet access option in Compaq's new Presario Internet personal computers.
Assuming that CMGI can divest its private Internet holdings at 20 times its original investment (in the case of Lycos Inc. (NASDAQ: LCOS), CMGI realized 90 times its original investment), their value, including investments made during the fourth quarter, is about $1.3 billion.
With Lycos trading at around $34.56, Geocities at $24.00, and including investments in Amazon.com and Hollywood Entertainment, the fair value of CMGI's stock is $84.
We reiterate our Buy recommendation of CMGI.
Analyst: Alex Yakirevich
Updated 9/29/98 with CMGI at $58.00.
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