Good Gorcon,, as I have amply pounded the table on CMGI from 38 ..
Made over 400k on this ,, this is a monster ,,,
Come into light side ,, and stop hanging with Asensio's whores..
BUSINESSWEEK ONLINE: DAILY BRIEFING
October 15, 1998
STREET WISE by Amey Stone
CMG: A SPRINGBOARD INTO THE NET FOR INVESTORS
Wish you had gotten in earlier on the likes of Yahoo (YHOO), Amazon.com
(AMZN), and America Online (AOL)? Premier companies may seem the safest way to
play the Internet, but some investment strategists believe these companies are
overpriced, even though their stocks are off about 15% in the past two weeks.
Taking a flyer on an Internet upstart could offer greater upside potential.
But that involves even more risk -- as well as the challenge of choosing among
all those fledgling companies with bold plans and rivers of red ink.
If these sorts of dilemmas are preventing you from making your first foray
into Internet investing, CMG Information Services Inc. (CMGI) offers a
possible solution. This still little-known Andover (Mass.) firm is part
holding company and part venture capital fund for about 30 Net-related
startups. Its past successes include investing $4 million in then privately
held Lycos (LCOS), which has returned about $375 million to the company
(nearly 10,000%) in just 11 months. Also notable: A $6 million investment in
GeoCities (GCTY) which grew to nearly $150 million in 32 months.
CMG's other Internet holdings are private and thus lesser known and include
companies like Engage/Accipitor, which compiles and analyzes data on Web
surfers that sites use in marketing, and Planet Direct, a Web portal
customized to be the front end for more than 400 Internet service providers.
CMG, which on Oct. 7 launched a new marketing campaign to help raise its
profile, is just starting to invest a new $150 million venture fund in startup
companies. One of the first beneficiaries is Raging Bull (www.ragingbull.com),
which operates increasingly popular online financial message boards -- even in
a bear market.
CMG is often compared to an Internet mutual fund, since investors in the stock
get to leave the hard work of choosing among the thousands of promising Web
startups to the company's professional managers. But the real key to the
company's success is the important role CMG plays in helping the enterprises
develop. "Besides financing, CMG provides assistance, guidance, and potential
customers to these companies," says Ryan Jacob, manager of the Internet Fund.
For example, he says, when CMG invested in Reel.com, a Web-based video store,
it helped bring in outside investors, helped select a new CEO, and held
promotional events on its affiliated Web sites. After investing only $7
million a little over a year ago, CMG has announced a $100 million stock deal
to sell its stake to Hollywood Entertainment (HLYW). CMG's unrealized gain is
$17 million, or a return on investment of more than 250%. CMG companies also
share customers and technologies. For example, Engage/Accipter lined up Lycos
and GeoCities as early customers.
The ability to provide that kind of leg up "gives CMG access to early-round
financing of very promising startups," Jacob says. Not surprisingly, after
leaving the podium at last week's Fall Internet World '98 trade show in New
York, David Andonian, president of CMG's Internet Group, was mobbed by hungry
entrepreneurs seeking a minute or two of his time. Andonian says CMG is lately
receiving 400 to 500 business plans to review each month -- double the volume
of last year.
Because of what he calls the "network effect," First Albany Corp. analyst
Ullas Naik believes CMG's stock deserves a 15% to 20% premium over the sum of
its holdings. Most analysts just add up the value of CMG's publicly traded
companies and cash plus an estimate for the value of all its private
companies. Earnings and revenues don't count for much since CMG is not an
operating company, and Web startups should be expected to operate at a loss.
But, thanks mainly to gains from the sale of Lycos stock, CMG recently
reported net income of $16.6 million, or 79 cents a share, on revenues of $21
million for its 1998 fiscal year ended July 31.
CMG shares closed on Oct. 14 at 45 1/8. Based on adding up the value of only
20 of CMG's companies, Ken Winston, an analyst with Needham & Co., recently
judged that the stock was trading at about the right price at 55. But he
expects CMG to climb to 75 over the next 6 to 12 months based on valuation
increases in its companies -- including the 10 he hasn't yet placed a value
on. Naik believes the share price can climb to 90 based on the strength of its
network. "A lot of people don't give CMG enough credit for it," he says.
Naik adds, however, that his price target is "contingent on the IPO market
shaping up." CMG has been hit hard by the weakening of demand for initial
public offerings, where it has registered the bulk of its gains in the past.
That, along with the overall market slide, is why the stock is trading at less
than half its 52-week high of 91 3/4 recorded last July 21. (Lest you think
the stock is cheap, keep in mind that it's still up about 180% since the
beginning of the year.)
The weakened IPO market temporarily limits CMG's ability to bring its later-
stage ventures public. But Andonian says the company doesn't need the cash and
can create value for its shareholders by selling companies as well as bringing
them public. As for the decline in the Internet sector and the overall stock
market, he points out that Web companies are not reliant on international
business and will continue to benefit from growth in the Internet even if the
economy weakens. "We don't see any real long-term cause for concern," he says.
Clearly CMG's diversification across the Internet hasn't insulated
shareholders from a market setback. But the diversification play it represents
should keep investors from getting clobbered by betting on one Internet stock
that fails to live up to expectations. The bottom line is that CMG has proven
it can win big by picking Internet startups -- and it has a lot more arrows in
its quiver.
Stone is an associate editor at Business Week Online
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