Austin, I remain cautiously optimistic about MSGI's prospects, but there are a few open points that few on this thread have addressed. Perhaps you wish to comment on them.
1. MSGI's growth appears to be external, through acquisitions, rather than internal. The increase in revenues for the quarter ended December 31, 1998 appear to be the result of a full quarter's inclusion of revenues from the acquisition of MMI (Media Marketplace, Inc.) that occurred on December 1, 1997. Only 1 month (December, 1997) of revenue from this acquisition was included in the year ago prior quarter. So to say they are on the road to annualized revenues of $100M is to overlook the fact that this is purchased growth and that it carries a cost with it.
2. MSGI is financing its growth largely through a combination of cash and its stock. To its credit, they repurchased some stock at great prices in Q4, 1998.
3. The acquisition of CMG Direct, which is expected to close on May 15, 1999 was for $14M in cash and $12M in MSGI common stock.
4. As of 12/31/98, cash and short term investments were $2.175M and cash flow from operations (6 months) was a negative <$1.604M>.
So to close this acquisition, it appears to me that MSGI will have to borrow $12-13M from someone or issue a secondary offering. Do you know who will finance this acquisition or do you have any thoughts on the follow-through secondary offering?
5. MSGI's outstanding shares are approximately 12.7M. That number is going to have to increase dramatically in order to attract the kind of institutional attention that will add some "lift" to the market for this stock. I don't see a split occurring at any price less than $60 and from a market perspective, there's a bit of a road to travel in order to get there. So will it be the job of momentum investors to assume the investment risk in driving up the price of the stock?
6. MSGI's intangible assets (largely purchased goodwill), if removed from its balance sheet, effectively produces a negative net worth. I understand that this is normal and customary for most inet stocks, but what does it say about asset quality? So, excluding intangible assets, you have a company with something close to zero net worth with a market cap of approximately $215M.
Does anybody care about the numbers anymore?
7. So was the purchase of CMG Direct a better deal for CMGI (allowed it to sell a business in exchange for some ($14M) in cash consideration than it was for MSGI who has to borrow through the capital markets to pay for this acquisition?
Would greatly appreciate any observations you or other threaders would like to offer.
Best regards,
Mark A. Peterson |
