Hi Malcolm, It is a beautiful weather day here in Hong Kong. The market was good last week, the past weekîs work is tidied, plants are watered, dishes are done, windows are open, ceiling fans are spinning, ©to readî pile is arranged, bottle of Starbuckîs Frappuccino Mocca is open, and Nina Simoneîs ©Feeling Goodî is playing on the music box. I will put in my two bits on your querry of CMGI vs Softbank and then go for walkies with wife to Stanley Market for lunch. Perfect day shaping up.
I will take the querry in parts, (1) will CMGI or SFTBF be the better I-net investment vehicle, and (2) what should I do now if I owned both.
I will review in brief CMGI and SFTBF by (1) Focus ùC what they are doing where and how they are doing it, (2) Structure ùC who they are doing it with, management and partners, (3) Phasing ùC where are they now with the program of doing it and what is ahead, (4) Economics/competition ùC and (5) Valuation.
On what to do if I owned both, (1) orderly retreat, vs. (2) straight forward exit CMGI and buy SFTBF. I note that I do not actually and have never owned CMGI but gorged on SFTBF since early November of 1998 (watched Son since a year before that). Like Badon518, all my holdings tend to be of the first team variety (cheering for the underdog is OK when no money is involved) as life is full of danger already, and like Yamakita-sen, I do have a varied portfolio though lobsided to 9984 by appreciation.
Focus:
CMGI appears to be primarily focused on investing in B2C service sites in the USA with a smattering of holdings in B2B (i.e. Chemdex) and web technology companies. CMGI lately has been making some headway in international expansion (i.e. Hong Kong with PCCW, but really early days). CMGIîs overall strategy has been one of ©first entryî and subsequently ©copy what we can from SFTBF, given lots of available assets on the market has gotten really expensiveî (i.e. purchase of Altavista).
SFTBFîs focus has been investing in incubating B2C service sites and subsequently increase shares in more successful companies. SFTBF appears to be successful in more fully exploiting the synergies between its portfolio companies (i.e. E-trade and Yahoo, Yahoo and Geocities) and very successful in ©globalizingî its investee companies (Yahoo Japan, Korea, China, Hong Kong, Germany, Taiwan, UK, France, and same again for E-trade). SFTBF has also established itself as a gatekeeper of internet development to Japan and is the partner of choice for new entrants.
SFTBF is also focussed on the build out of I-net infrastructure in Japan: Cisco Japan, Tepco/MSFT JV, JskyB.
SFTBFîs strategy of group synergy + financial front end + international geography + time machine + cheap capital + political lobbying is convincingly coherent and certainly makes a brilliant story (they should take out advertisements in all the papers and traditional media for one day).
Finally, Yahoo is beginning to make noises in the B2B sector, and SFTBF has a good shot at starting NASDAQ Japan. I note that B2B takes sector specific expertise and Nasdaq Japan takes launch and acceptance.
Structure:
CMGI has a smattering of INTC and MSFT equity involvement and is allied with the likes of also ran PCCW and the like. Its management are OK, visionaries they are not, especially as they continue to sell down their own shares with such enthusiasm.
SFTBF speak to INTC, CSCO, MSFT, News Corp and anybody else as equals. Son is a visionary in our eyes. Son owns 40+% and is not selling out. Management is top notch. Portfolio company management are selectively strong (Yahoo, E-trade, etc).
Phasing:
CMGI needs to internationalize as I-net is definitely a global business, and CMGI has no hope in hell to dominate the US I-net scene, in operations or VC role.
SFTBF, well on its way to full global presence, and is absolutely dominant in Japan for now, viewed as god, while Yahoo is neck in neck with AOL in USA, and within top three in subscribers in all the countries where they have a presence.
Economics:
CMGI Price:Book - 14 x
CMGI Market Cap ùC US$ 9.829 billion
SFTBF P/B ùC 18 x; but what a book!
SFTBF Market Cap ùC US$ 42 billion; difference between a global player and a US player
CMGI debt ùC negligible, as no one would lend to such a company
SFTBF debt ùC loads and oodles, at 262% of capital (duper leveraged pure internet play, but at tiny interest rate ùC we are all playing in the hedge super league thanks to Sonîs name and vision)
Competition:
CMGI ùC SFTBF and every Tom, Dick and Harry that is one click away
SFTBF ùC CMGI, MSFT, Merrill Lynch, Citicorp, Tokyo Stock Exchange, JASDAQ and every Tom ð a function of its focus, reach and scale
Valuation:
Who knows what the right measures, comparatives and analytics are, and if I-net tanks, both go down. Assuming cash is king for valuation purpose, then ð
CMGI price cash flow = 145.45 now and possibly forever
SFTBF price/cash flow = 64 x for 1999, 253 x for 2000, and 97.5 x forward looking to 2001
SFTBF institutional ownership is tiny and can only grow, CMGI institutional ownership sits at 36%, insiders at 30%, both selling right now.
SFTBF profile (©wholesaler of personal computer software and hardware peripherals. Also publishes magazines and books for PC users ð ø quoting Nikkei Investors Watch) is actually only high in our eyes. CMGI is known to the masses already.
Look at www.bloomberg.com and use the comparison chart function on CMGI and SFTBF for both 1 year and 6 months is interesting ð
CMGI shares traded within a tunnel of US$ 80 to $ 130 per share since January.
SFTBF traded with a rising slope of US$ 70 to $ 460. We will come back to this point soon.
Assuming I owned equal value of CMGI and SFTBF, what would I do now?
Bob Martin has a good point about holding both, and in additional, who knows what news announcements has in store for CMGI ð suppose GE or MSFT decides to buy them out tomorrow? There is upside left in CMGI still and diversification, even in I-net shares is not bad.
Swisstrader sounds like a person who subscribes to taking profit while the profit is good but do want to entirely leave the I-net party, selling CMGI and buying QCOM and SFTBF.
I, like Jonas1, am only in SFTBF, as if we can sleep soundly at night we have not risked enough to make a difference. We can use some reminding that caution is good in cyber space when we have not yet figured out whether it is finite or closer to infinite.
ORDERLY RETREAT vs SUDDEN HURRIED EXIT
I take the view that CMGI will continue to bounce around in its price tunnel and SFTBF will continue to rise but, if the I-net market tumbles, SFTBF will fall faster and deeper than CMGI. Along the way, there will be a sizeable hiccup. If this view is accepted, then ð
CMGI closed on Friday at $109, assuming CMGI and all OK I-net shares will rise through the holiday season, I note selling a Call option against the CMGI shares you hold (obligation to sell your shares) in third week of January at US$ 120 will get you US$ 10 per share now. If CMGI rises above 120 by that time, the Call buyer will get your shares for $120 and you keep the $10 premium as well. If CMGI fails to rise above 120, you simply keep your CMGI shares and the $10 premium and do it all over again until called ð do this couple of times (assume you bought CMGI some time ago) your CMGI shares will have cost basis of zero.
On the aggressive side, selling a call against your CMGI shares at $120 by January 2001 will net you $30/share now. Not a bad return for holding on a year. Of course, the whole I-net house might collapse by then. CMGI need to collapse to US$ 80 (109 minus 30) before you are losing relative to now. CMGI collapsing to 80 has negative implications for SFTBF as well.
Getting slightly fancier, you can sell a CMGI 2002 January Call at strike price $110 against your shares at $ 44/share premium now, obliging you to turn over your CMGI shares at $110 2 years from now, and sell CMGI 2002 January Put at strike price $50 (obliging you to buy at $50.share 2 years from now) at $ 8/share, resulting in total receipt of US$ 52 in premium today and go buy SFTBF warrant of any long duration (or buy SFTBF shares outright for simplicity and safety). This would effectively selling 48% of your CMGI (52/109) on contingent basis and taking a leveraged bet on SFTBF (leverage on a leveraged vehicle, nature of the game) at the same time. If the I-net market tanks, your SFTBF warrant becomes worthless and may have to buy CMGI at $ 50 even if it falls to $25. But CMGI at $50 is a probably buy anyway.
Bottom line, exit CMGI gradually (as it still has upside) and increase SFTBF holdings more rapidly (as time is running out before 9984 is a familiar number). The volatility in I-net may enable you to keep a good chunk of your CMGI and increase you absolute shareholding in SFTBF.
I hope I do not sound like a preacher through the distance of cyberspace, and do not sound too conservative given I just read Barron's and Business Week (general debt level in the economy as a worrying issue) again. |
