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CMG-Wiz? Internet Investment Firm Stock Soars

Its stock jumped 20% to an all-time high of more than $92 per share April 13, its market cap sits at over $945 million, it posted a $5.8 million loss in the latest quarter, and the question remains: is CMG Information Services still hot? Perhaps.

Why? despite an alphabet soup name, CMG invests in Internet firms--more than a dozen to date. Names like Lycos (NASDAQ:LCOS) and GeoCities top the list of better known ones. So valuing CMG on direct marketing revenue (its old mainstay) is out of step. The key to CMG is off-balance sheet equity, Internet equity, which is the flavor de jour again for investors. CMG owns 42% of Lycos which alone is worth $428 million according to Wall Street as of April 13 close.

CMG owns 44% of the number one free Web page (community) building site GeoCities, a candidate for initial public offer if we ever saw one. We estimate GeoCities could go live at anywhere between $250 million to $350 million at IPO. CMG's 44% at that estimated IPO range could fetch as much as $150 million.

Between LCOS and GeoCities that's $582 million sitting off balance sheet.

Toss in the other 10 or so privately-held Internet firms (see list), including Web site solution provider Ikonic, and the portfolio here could find buyers at north of CMG's market cap.

As we've said in past reports over the last four years when analyzing CMGI, the off-balance sheet investment portfolio value could exceed the trading value of CMGI shares even today at the $945-plus million market cap. Yes, we think it may be touching the froth stage but still may be the closest thing public investors can get that's a venture-like return. Not as good as a year ago for sure but . . .

Overall we think the portfolio at liquidity could hover as high as $1.3 billion. The key, however, is that some of these firms may not be as easy to sell or IPO as others. But the ones that are hot so far make up for the ones that are not so far. Look at the basket here:

CMG Info's Portfolio

CMG investments business/product
blaxxun interactive 3D software
Chemdex Corp. Lifescience on Web
GeoCities (44%) Free web pages
Ikonic Website solutions
Lycos (42%) Search/navigation
Koz Website mgt
Parable Internet software tools
PlanetAll Contact management
Reel.com Movies, videos
Silknet Enterprise software
Softway Systems UNIX for NT
Speech Machines Voice driven systems
Vicinity Custom directories
source: CMG Info (www.cmgi.com)

Revenue for the latest quarter ending January 31 showed $17.8 million revenue and the aforementioned $5.8 million loss or $0.58 loss per share vs. $0.07 EPS for the same quarter in 1997. The six-month revenue for the period ending January 31 was $42.9 million revenue and $3.1 million loss or $0.32 loss per share vs. $.074 loss per share for the six month period ending January 31, 1997.

At a 20x Lycos-like revenue multiple, CMGI could trade north of $1.2 billion--but it's not Lycos. And we're not convinced that navigation stocks won't give up a piece of the sensational gains they've had the past month anyway.

With its asset mix we prefer to value the potential on the portfolio and its past successes. CMG looks like it may be able to raise cash anytime by selling LCOS shares or doing a private divestiture or IPO with the stronger candidates.

CMG sold an early investment, BookLink, to AOL; NetCarta to Microsoft; Lycos to the public; and TeleT to Premeire.

Notably the only mis-step looks like Freemark which closed down. It wanted to provide an ad-based Internet service--an idea before its time given that ad revenues for the Internet only just reached $1 billion this year (compare that to TV at $40 billion).

All we can say so far is not CMG but what an @Venture.



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