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CMGI's Long, Cold Winter

If you had asked investors and analysts in 1998 or '99 which Internet stocks they thought would emerge as big winners, CMGI would have been on most short lists.

In fact, a year ago I named CMGI as one of my 10 stocks to watch in 2000, calling the Massachusetts-based operating company the equivalent of a "one-stop basket of Internet stocks" and an "Internet stock that should be part of everyone's portfolio," even as I noted it was overvalued at 130x trailing 12 months revenue.

Well, at least I was right about the overvalued part.

Today, in the wake of a brutal year for 'Net stocks that exposed untested business plans, faulty market assumptions and overvalued companies, it is not unfair to say that CMGI's very survival is now in question.

Indeed, when a company starts talking about how long its cash will last, then clearly it is in full bunker mode.

On Thursday CMGI all but conceded it had little control over its fate, other than to continue bailing water and wait for the storm to subside. For months CMGI has charted a course of downwardly revised revenue forecasts, massive layoffs and the selloff of a number of operating companies, most of which never gained traction.

Through it all, CMGI officials have issued confident predictions it would meet this revenue target or that profitability timetable (and don't forget that ever-pending AltaVista IPO). Last September, the company assured Wall Street that by the end of its fiscal year (July 31) it would achieve cash profitability in four of the five operating units it intended to keep.

Now CMGI says while it still could achieve that goal, it is not a top priority. In a conference call, CEO David Wetherell offered this curious reason: "We believe this approach may not be in the best interests of our shareholders."

Call it a hunch, but I suspect most shareholders respectfully disagree.

Further, CMGI said it had "limited visibility" into the remainder of the fiscal year, so couldn't offer any more guidance to analysts and investors. Translation: We have no idea what's going to happen for at least the next six months, so don't hold us to anything.

The only numbers CMGI would stick to were estimates that cash reserves would be $600 million to $700 million by July 31, implying the company is a long way from running out of money. At the same time, however, CMGI - which several months ago said it intended to reduce its cash-burn rate to $45 million per quarter - now says it can no longer predict cash burn.

Not much here for investors to hang their hats on.

Since peaking at a closing price of $163.22 on Jan. 3, 2000, CMGI has lost 96.5% of its value. In mid-December, it fell below $10 per share for the first time in two years. And though the stock has climbed in recent days from its Jan. 8 close of $3.91 (hitting $7.25 on Wednesday before tumbling back to $5.69 by Friday), look for new lows in coming days and weeks. There's simply no catalyst in sight capable of pushing shares back up.