WSJ AUG 4: Analyst at First Albany Corp. CMGI target of $110
>>>Ullas Naik, an analyst at First Albany Corp., said he believes the shares are trading near the value of CMG's assets, but he has a price target of $110 on the company because he thinks the value of CMG's network of companies will continue to grow.<<<
The Wall Street Journal Interactive Edition -- August 4, 1998
CMG, Playing Venture Fund,
Extends Its Winning Streak
By LISA BRANSTEN
THE WALL STREET JOURNAL INTERACTIVE EDITION
SAN FRANCISCO -- It's tough for even the most daring investor to turn $5 million into $25 million in just over a year.
That, however, is what CMG@Ventures, the venture-capital unit of CMG Information Services, did when Amazon.com agreed to buy PlanetAll -- including CMG's minority stake -- for about $90 million in stock.
Investors welcomed that good news by pushing CMG shares up 2 11/16 to 66 5/8 on the Nasdaq Stock Market -- even as technology stocks declined sharply and the Dow Jones Industrial Average fell nearly 300 points. The Nasdaq Composite Index dropped 65.46, or 3.54%, to 1785.64, while Morgan Stanley's high-tech 35 index sank 20.89, or 3.51%, to 574.04.
In June 1997, CMG made the first of two rounds of investments in PlanetAll, an on-line organizer service that lets users easily update contact information. In all, CMG paid about $5 million for a 25% stake.
But perhaps even more amazing than CMG's good fortune from PlanetAll is the fact that it's part of a string of investment gains CMG is expected to realize by the end of next week.
First, CMG reaped a big gain Friday when video-rental chain Hollywood Entertainment acquired on-line video store Reel.com, which is 34% owned by CMG. Then came the PlanetAll deal. And CMG, based in Andover, Mass., is expected to complete the hat trick next week when GeoCities, in which CMG holds a 36.7% stake, goes public. If GeoCities goes public at $14 a share -- the top of its forecasted range -- then CMG's 9.8 million shares would be valued at about $137 million. Not bad for an investment of $6 million.
"It's an incredible track record," said Ken Winston, Needham & Co. "It's a model that works [because] the portfolio companies get to benefit from each other." Mr. Winston said he believes that the company can continue to pick and sell top companies and has a "buy" rating on CMG's stock.
CMG is perhaps best known for its role in financing Lycos, the Internet guide, and many of CMG's companies have formed strategic relationships with the highly trafficked site.
CMG has also scored big with Lycos. CMG had planned to sell one million shares of Lycos in a secondary offering in June, but between the time the offering was filed and the transaction was completed shares in Lycos tumbled more than $10 a share and shares were sold to the public for $50 on June 10. But instead of taking that price, CMG reduced the number of shares it sold in the offering to 250,000, choosing instead to sell shares later on the open market. Since mid-June, CMG has sold 700,000 shares on the open market at an average price of $72 a share.
Due to its big stake in Lycos and its pipeline of other start-ups, shares of CMG have surged as investors realized that CMG presented a relatively liquid way for stock-market investors to play in the world of venture capital. After starting the year at 15 1/8, CMG shares surged to 99 in June before settling down to trade in the mid-60s.
The recent deals certainly carry some risk, however. CMG gets a much more liquid investment by exchanging its stake in PlanetAll for shares in Amazon -- but the on-line bookseller is considered richly valued and the shares could certainly tumble before CMG is allowed to sell them in November. And with the Reel.com sale, CMG is now the largest shareholder in Hollywood Entertainment.
But Michael Graham, an analyst at Raymond James and Associates, isn't worried that much of CMG's gains are on paper, as "they've got a great gain no matter what." He said investors are starting to understand that the shares should trade like those of a mutual fund, based on the value of the underlying holdings, and he figures CMG's assets to be worth about $70 a share.
He has an "accumulate/long term buy" rating on the shares in part because the company does face some risk if demand for shares of Internet companies weakens. But he added the Reel.com and PlanetAll deals "show that they're not beholden to the IPO market to liquidate their investments."
Ullas Naik, an analyst at First Albany Corp., said he believes the shares are trading near the value of CMG's assets, but he has a price target of $110 on the company because he thinks the value of CMG's network of companies will continue to grow.
That network of companies allows CMG to introduce start-ups to potential partners and customers. Lycos and Planet Direct, a free personalized Web service, now will have a relationship with Amazon, one of the most important e-commerce sites on the Web. The synergies will only add to the value of CMG's network, Mr. Naik said. "The expectation is that over time this network is going to become so valuable that it will cause the [value of the net assets] to rise."
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