eMailbag Monday: CMGI, IPO, ZDnet

First reader up this week writes:

“Dear Steve: what is the future of CMGI?”

Reply: The future is now. I have always seen CMGI (NASDAQ:CMGI) as a public venture capital/holding company for Internet firms. More of the same but the game is more expensive with rewards also likely growing. Consider, CMGI investing $100 million in Internet broadcast startup iCast, headed by Neil Braun from NBC and Matt Farber from MTV.

In 1995 you could have started that with $4 million. The problem then was no “traditional” broadcasters wanted anything to do with the Internet and hence was born by two newbies (and sold to Yahoo for several billion). The great think about CMGI’s model is it bets on many things at once, diversifies its risk. Deploying its capital in Internet time will be its biggest challenge, but that’s a challenge held by every investor.

“Steve: where do you see’s IPO today if it goes?”

Reply:’s first-quarter sales reached $32.3 million vs.’s (NASDAQ:AMZN) $293.6 million. So my first comment is these two are not competitors. In my view Amazon has won or at least competes in a different league. plays catch up and will do so for a long time while Amazon goes and spends its $3.5 billion in debt/securities. Some have said Amazon should acquire Lycos (NASDAQ:LCOS). I think if Bob Davis was keen on being a shopping portal then that makes sense, and it’s all Web. Then Amazon can go cut a TV deal with much greater leverage than Lycos could.

On’s IPO I would think a fair value could see it in the $2 billion market cap first day. To get there I expect that money managers that missed the Amazon story will mistakenly buy into’s story on the belief that it’s a similar plot.

I would say it’s not.

But investors may likely convince themselves that having Barnes & Noble (NYSE:BKS) as a parent company and leverage will make stock more “solid.” The problem is that having BKS as parent translated into them not seeing the shift to Web-based bookselling three years after Amazon. In other words, it’s a drag on being a pure Internet enterprise.

The difference is key: Amazon is not a bookseller, it’s a pioneering etailer; is a bookseller, and a copycat bookseller at that.

Gee ZD

“Steve, I’m interested in your thoughts on Ziff Davis (NYSE: ZD) and ZDNet (NYSE:ZDZ). I have been holding ZD since it IPO’d last year and have seen my
share of ups and downs.

It’s a great company in my opinion, but it doesn’t seem to hold interest of the market. When ZDZ was “spun-off” as a tracking stock last March, ZD was trading as high as $29/shr.

Although CNET does have certain advantages over ZDNet, I believe ZDNet is a quality site. At a market cap of $1.75 billion, it is valued at only 1/3 of
CNET. Furthermore, ZD’s market cap is only $1.47 billion when it owns 86% of ZDNet (around $1.5 billion).

ZD is a conglomerate of tech divisions (COMDEX, tech publications, ComputerShoppers, market research, etc.) which I view as being ideal for Internet driven business models. ZD appears to be grossly undervalued and under-appreciated. What’s your opinion?”

Reply: To me the value shift went from paper to paperless, that’s why ZD (NYSE:ZD) and ZDNet (NYSE:ZDZ) have similar market capitalizations, with the Web-based (paperless) enterprise at a slight premium. Magazines typically trade at 1x to 2x sales. Web firms can run from 5x to more than 100x depending on the firm.

On CNET (NASDAQ:CNET), it offers a cleaner model as a pure play but on a revenue to revenue comparison ZDNet looks like it’s trading at a substantial discount to CNET. Both CNET and ZDNet posted similar 1Q99 revenue and ZDnet has more unique monthly users. The spinout was a good move yet not beinga pure play has its drawbacks in value.


“Steve, I’ve donevery well with GNET. I decided to hold long even when GNET was at 190-199. Now that it’s fallen very far, very fast to 119 … I wonder if I have to wait two years to get back to 200 or if it has much further to fall.
Could you talk about their challenges and where you see the stock heading NT to 6 months and LT 1 year+?”

Reply: I think Go2Net (NASDAQ:GNET) is now Paul Allen’s vehicle for his Web investments, a platform for creating and assembling his Wired World strategy. With the capital commitment, resources, mixed media assets available I see Go2Net as a portal for future broadband services that Allen looks to be aiming for.


“Steve, I keep reading about all of the Internet and telecommunications investments that Microsoft continues to make. They have spread themselves around with many of the successful and potentially successful companies. Why is the value of their stock not increasing this year – it seems to me that with all the small percentages of these companies that they own, their value should be increasing.”

Reply: The Justice Department trial slowed Microsoft (NASDAQ:MSFT) down and its off-balance sheet assets are not thought of by most investors. Ultimately I think the most leverage Microsoft may have in the future could be as an investor and not as an OS maker. Capital is platform-free.

Introducing Internet StockTracker, the new weekly e-mail newsletter from LLC. Every Friday will deliver to your e-mail
in-box the latest performance data on individual Internet companies and
their competitors. Internet StockTracker will deliver to you all the
statistics you need to assess the week’s activity.
Subscribe today for $157.


"Fresh and provocative" -CBS
Marketwatch, who named
Steve Harmon one of the top Internet stock analysts and only independent
one honored

"I am a huge fan of Steve Harmon’s analysis"
-Kleiner Perkins’ John Doerr

News Around the Web