CMGI Gets Back to Basics

While the late nineties awarded venture capital sugar daddies a license to
mint money, the new millennium has come calling like a deal with the devil
gone bad. Everyone wondered aloud when the cycle would start to ease, but
few anticipated the utter collapse that would steal the wind from even the
hottest VC’s sails. Those left afloat huddle patiently offshore awaiting
the next high tide that will lift all boats. And just beneath the surface
lies the wreckage of wannabe newcomers who never stood a chance.

The new issues pipeline is in desperate need of a good plumber, and
publicly-traded venture firms who once soared on moonshot portfolio
valuations have been forced to sing for their supper. Business-to-business
bigwig Internet Capital Group has taken its
lumps, trading at $33, 85% off its 52-week high of $212. Even a feeble
attempt to distance itself from the B2B space it helped launch didn’t save
Safeguard Scientifics from getting taken out behind
the woodshed, down 70% from its $100 high.

Launched from obscurity to overnight celebrity status by an auspicious
investment in Lycos , CMGI was the original venture capital Pied Piper that launched a
thousand copycats. But with business-to-consumer premiums evaporating, the
company has found itself decidedly flatfooted with a stable of B2C
thoroughbreds in its portfolio. The firm has been trending sideways in a
narrow trading range recently at $36, just $3 from its 52-week low, and 80%
from its all-time high.

CMGI’s stock price is closely tied to the liquidity events that follow
taking its fledgling start-ups public. Now that the IPO market is in a
holding pattern for an undetermined amount of time, it appears CMGI has
grown impatient waiting for a rubber-ball rebound on its own Net stock

In prior years, the company enjoyed investors’ unbridled enthusiasm,
especially when it came to posting quarterly earnings. Almost comically,
analysts who followed the firm closely never could hit the side of a barn
when it came to CMGI’s numbers. Officials would dismiss concerns, citing
its status as a holding company with mysterious and complicated earnings.

“There’s absolute confusion out there about what CMGI is,” said company
president Dave Andonian earlier this week. And during frothier times,
that’s just the way CMGI liked it. Earnings a little light this quarter? No
problem. Sell a few shares in a dot-com investment, and drop an earnings
bombshell. Miss, meet, or beat estimates – it just didn’t matter – until now.

With grumpy investors voting profitless dot-coms off the island, CMGI has
seen the handwriting on the wall. Sensing the worth in finally allowing
investors to make heads or tails of its quarterly earnings, CMGI plans to
clean up its fiscal results in September. For the fourth quarter, the
company will divvy up revenue into five operating divisions and outline
plans for profitability in each.

It’s commendable, but will the move help? It’s too early to tell, although
pulling back the curtain may actually exacerbate CMGI’s current state of
affairs. Once armchair investors get an eyeful of decipherable results,
they might not like what they see. What CMGI really needs is what most
Internet companies could use a little of right about now. Some good old
fashion froth. In the meantime, company execs wait patiently for the high
tide to come in.

Any questions or comments, love letters or hate mail? As always, feel
free to forward them to [email protected].

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