Here it is!!
CMGI INC. Andover, Massachusetts Parent Firm Nurtures Family Of Web Start-Ups
Date: 3/22/99
Author: Matthew Benjamin
CMGI Inc. has been getting a lot of ink lately.
The Internet company has been waging a very public battle to prevent USA Networks Inc. from acquiring Web portal Lycos Inc., in which CMGI holds a near 20% stake. CMGI says it's holding out for a better offer.
In addition, the company gained a new mark of distinction this week. It was added to the Nasdaq-100 Index, which includes the most prominent companies trading on that exchange.
But those developments aside, what exactly does CMGI do?
The company is often described as an Internet venture-capital fund. That's by no means inaccurate.
A large part of CMGI's business involves scouring cyberspace for budding companies that have compelling ideas but lack sufficient funds to make it big. CMGI tries to get in on the ground floor and capitalize on the Internet's rapid growth.
And its track record is outstanding. A $2 million investment in Lycos in 1995 has blossomed into a roughly $700 million holding, not including the Lycos shares it already has sold.
A similar investment in Web community GeoCities, which is to be acquired by Yahoo Inc. for $4.6 billion in stock, is now worth $850 million.
Home runs like those have elevated CMGI's management to a status unrivaled in the Internet investing world.
CMGI has 40 companies in its stable. It owns some outright, others it has just a small interest in. Many are considered Internet up-and-comers.
CMGI also creates companies itself, coming up with new ideas and then matching them with talent and funds to form new companies.
But much of CMGI's success lies beyond smart investing. ''They put seed money into companies, and then use their network of companies to help commercialize the company or propagate the service,'' said analyst Sherri Wolf of Adams, Harkness & Hill.
''They also use their expertise based on the focus and experience they've had investing in the Internet over the past four years,'' she added.
Indeed, when CMGI invests in a start-up, it's very hands-on.
''We're involved in strategic decisions, operating decisions, hiring decisions, deal negotiations - every aspect of a company,'' said Peter Mills, managing partner at CMG@Ventures, CMGI's investment arm.
Steve Hansen, GeoCities' CFO and chief operating officer, concurs.
''Peter (Mills) was a phenomenal resource for me to draw on,'' he said. ''He was able to anticipate some of the mistakes before I made them, to help steer me clear of them. He was a terrific sounding board for business issues.''
GeoCities benefited from relationships with at least three other CMGI companies, Hansen says. Such inter-CMGI ties include cross-selling pacts, customer-supplier deals and Web page links.
''(CMGI chief executive David) Weatherell and Mills are very interested in seeing their portfolio companies take advantage of what one another have to offer,'' Hansen said.
And its reputation as a successful parent gives CMGI first shot at many new ventures. More than 1,000 business plans land on its doorstep each month.
From that array of choices, CMGI takes care to diversify its portfolio. It spreads its investments evenly across four Internet sectors: content, commerce, community and infrastructure.
By covering all bases, the company buffers itself from the volatility of narrow Internet niches.
Earnings should jump 57% to 58 cents a share in fiscal 1999 ending July 31. The company is expected to post a loss of 22 cents in fiscal 2000, First Call says. Earnings volatility stems from the fact that the company has no idea when it will make or sell investments.
''We have these liquidity events, so we cannot forecast when we're going to be taking advantage of market conditions to sell shares in the public companies we own,'' said Catherine Taylor, director of investor relations.
Revenue should grow 86% to $169 million this year, says analyst Phil Leigh of Raymond James & Associates. But he stresses that revenue and earnings are poor measures of CMGI's performance. Rather, it should be judged on the value of its portfolio, which analysts agree is top-notch.
Two more CMGI investments promise to soon pay off. Silknet Software, a provider of sales and customer support to Web sites, filed for an initial public offering this month. Critical Path, an e-mail hosting company, filed for its IPO in February. CMGI owns 24% and 6% of the companies, respectively.
Of course, CMGI also has a core operating business. It provides order fulfillment - assistance in processing sales - to small businesses.
Though that business brought in 85% of the company's operating revenue last quarter, it accounts for less than 10% of the company' market value, Leigh says.
In its Jan. 31 second quarter, CMGI earned 28 cents a share, up from a 15-cent loss a year before. Revenue rose 156% to $39 million.
The company trades as CMGI near 187. It plans a 2-for-1 stock split, effective May 13.
As for the ongoing Lycos saga, ''There's no rush to make something happen here,'' CMGI's Mills said.
The company feels little pressure to take immediate action, given that Lycos shareholders aren't scheduled to vote on the USA Networks offer until July. CMGI is still considering all possibilities. ''There is plenty of interest out there in Lycos,'' Mills said.
Media accounts depicting the affair as a personal battle between CMGI's Weatherell and USA Networks Chairman Barry Diller are inaccurate, Mills added: ''This is simply economics.'' |
