Tantalizing thoughts from Tom Harmon re CMGI/CBS/LCOS
Tom Harmon one of the best internet analysts, IMO. Without his input my portfolio certainly would not be where it is today. Thought this would be of interest here.
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I N T E R N E T S T O C K R E P O R T
by Steve Harmon
isdex.com
"Where Wall Street Meets The Web"
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CMGI Needs Lycos, Here's Why
CMGI (NASDAQ:CMGI) continued to find feet and run through April 12's
close, due in part to its announced stock split.
As one of my picks for 1999--up 467% since that pick--I want to take a
closer look again at the acronym company.
First off, in January when I added CMGI to my watch list I could see its
way clear to $25 billion market value based on CMGI's off-balance sheet
positions in dozens of startups, if the Internet IPO market stayed hot.
So far the IPO market has been nothing but.
However, I think part of CMGI's allure has been the phenomenal
performance of its two best-known investments: GeoCities (NASDAQ: GCTY)
and Lycos (NASDAQ: LCOS), both of which were made in the early days of
the Internet when all real estate went for pennies. Those days are gone
forever.
Both GeoCities and Lycos are involved in heavy petting of one sort or
another via merger.
GeoCities got the nod from Yahoo to dance, while Lycos got a "I'll dance
a fast dance but not slow one with you," from Barry Diller's USA
Networks. Diller's offer put Lycos at 30% pro forma the merger, causing
LCOS shares to fall from its $120ish level before the deal was
announced. LCOS April 12 was $103.875.
CMGI challenged the deal and I agree it should have. CMGI brought Morgan
Stanley on board to consider alternatives. One scenario I think makes
sense is this: CMGI and CBS teaming up to take out Lycos.
How does this work? CMGI needs distribution, CBS needs distribution (and
some Web-savvy managers a la CMGI). Lycos needs broadband content. My
suggested deal would have CBS taking a minority stake (about 40%) in
return for CBS stock and on-air time to the tune of several billion over
the next 10 years.
Meanwhile, back at the alphabet soup, CMGI gets to feed the CBS-Lycos
Network a bevy of startups for programming and services. Not to mention
CMGI's huge $100 million bet on an Internet broadcast startup with
former NBC exec Neil Braun. That expensive bet shows how much more
difficult it is today to buy half or all of a company for $2 million or
$3 million, as CMGI did in its early days.
No matter what happens with this speculative scenario I believe that
CMGI must address its distribution platform now and in a way that keeps
its footprint at the top of the pyramid.
To realize its value and grow into the expectation the cost of acquiring
substantial traffic today will still be cheaper than acquiring it
tomorrow in my opinion.
CMGI's value equation, like those of AOL-Netscape; @Home-Excite;
Yahoo-GeoCities-Broadcast.com, almost necessitates it play at the
platform level in excess of 40% Internet reach. Maybe even 50%.
One thing I believe: only five mega firms will get there to that magic
top five in Web audience. And those five will likely have TV and old
media partners in a big way. My bottom line: any venture investor --
CMGI included--without a platform will be paying tolls forever to the
top five. Don't stay tuned, define the channel.
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