Firm cashes in on 'Internet effect'
Marketing Services builds Web biz, sees share price increase
fourfold
by Mark Walsh
Sixteen months ago, Jeremy Barbera pitched his direct marketing
firm to a group of New York investors. More than one may now wish
they had invested.
That's because shares of Marketing Services Group Inc. have risen
fourfold in that period. Trading in the low $30s last week, Marketing
Services boasts a market cap of more than $400 million.
Call it the latest example of the Internet effect: An unprofitable
company adopts an Internet strategy, and its share price soars to
new heights.
Manhattan's Marketing Services agreed in March to acquire CMG
Direct, the marketing services unit of Internet holding company
CMGI Inc. The move is part of the company's strategy of buying up
both traditional and Internet marketing firms.
"We are being very much tracked as an Internet business right
now, and that is part of our ambition," says Mr. Barbera.
By scooping up companies such as CMG Direct and United
Kingdom-based list brokerage Stevens-Knox Associates,
Marketing Services expects revenue of some $125 million in its
current fiscal year ending June 30, up from $16 million in 1996. By
contrast, for the year ended June 30, 1998, it posted losses of
$780,000, or 37 cents per share, on revenue of $51.1 million.
To date, only about 10% of Marketing Service's revenue comes
from Internet services, including CMG Direct and its own Pegasus
Internet Inc., according to analyst Michael Shonstrom of Neideger
Tucker Bruner in Denver. The rest comes from its core direct
marketing business.
But Mr. Barbera expects that percentage to increase. He says
Marketing Services is in acquisition talks with three Internet
businesses, including ones in Silicon Alley. "We're taking a very
aggressive posture in this space," he says.
To help finance future deals, he plans to seek a secondary offering
later this year and is considering investment banks, including
Lehman Brothers and Bear Stearns, to underwrite the offering.
Mr. Shonstrom predicts that the company will continue to lose
money during 1999 while it buys up other companies, but could go
into the black in 2000.
An MIT graduate and former NASA physicist, 42-year-old Mr.
Barbera is used to working on long-term projects. "We're trying
hard to build this infrastructure, and the net income will come," he
says.
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