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Internet Capital Group's Staggering Burden

After a frenetic fall run-up that culminated in a New Year's opening-day blowout, Internet Capital Group's (ICGE) stock has been stumbling like a drunken reveler groping for solid footing.

However, in the wake of Thursday's earning report, it appears the Internet venture capital fund could stagger into spring.

And for good reason. Not only did the company lose $23.4 million, or 9 cents a share, in the fourth quarter, it remains terribly overvalued even at its current price.

With a market capitalization of $28.8 billion as of Friday afternoon, ICGE is trading at nearly 1,700x last year's $16.5 million in revenue. In comparison, rival CMGI (CMGI) is trading at 122x trailing 12 months' revenue.

ICGE's Q4 net loss compares to a year-ago gain of $2 million, or 2 cents a share. Worse, ICGE officials warned that net losses will extend into the "foreseeable" future. Not exactly a rallying call.

ICGE went public last August, and immediately stole much of the Internet incubator spotlight from CMGI as its stock and market cap continued to rise through the fall and early winter.

This year opened with promise for ICGE shareholders, as the stock jumped $30 to close at $200 per share on Jan. 3. Since then, though, Internet Capital has been fighting a losing battle with gravity. Shares are down 45 percent from Jan. 3 through Friday afternoon, when ICGE was trading at 110 3/16.

Meanwhile, the company continues to add to a portfolio that includes VerticalNet (VERT), eMerge Interactive (EMRG) and Deja.com. On Thursday the company announced it would buy eCredit.com, which sells systems linking customers to lending institutions.

None of which means ICGE can't recover. The company funds start-ups targeting B2B e-commerce markets, the current darling (along with Linux) of Internet investors. That alone has and will continue to provide plenty of froth to float on. But a four-digit revenue multiple is a heavy burden that can drag a stock down fast.



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