Internet Capital Group: Down, But Still Overvalued

It is a humbled giant, its still-hefty market capitalization towering over
those of the numerous Internet Lilliputians that have accompanied it on this
spring’s unpleasant ride down the stock charts.

However, unlike dozens of small-cappers that lack the cash reserves to
weather a prolonged market slump, start-up incubator Internet Capital Group is
built for the long haul.

The question is, will ICGE any time soon (if ever) recover the losses that
have made its stock among the hardest-hit this year? Down 79.2 percent
since Dec. 31, ICGE is among 88 Internet companies to have lost at least
three-quarters of their value this year.

ICGE’s best chance to turn things around comes later this month, when the
company releases its Q1 earnings report. But it had better be dazzling, for
the company must overcome a still-high valuation that continues to put
tremendous pressure on its shares.

With a current market cap of $8.4 billion, ICGE is valued at 510x last
year’s revenues. To provide some perspective, look at the valuations of the
largest revenue-generating Internet companies in Wednesday’s StockTracker
Daily. Six were valued at 10x trailing 12 months’ revenue or less.

Even Yahoo!, which is
trading at 89x TTM revenues, is a bargain compared to ICGE. Especially when
you consider Yahoo! is profitable, while ICGE lost $23.4 million in the
fourth quarter of 1999, and $29.8 million for the entire year.

Also, as a venture capital company specializing in business-to-business
plays, ICGE is heavily dependent on market sentiment for that sector. Last
year investors snapped up B2B stocks as if they all would be winners. Now
that they’ve finally realized there will be losers too, the sorting-out
process has begun. That may prolong a recovery for the entire B2B sector.

ICGE is no threat to join the latest list of Internet endangered species.
The company has vast resources to weather tough times, including $1.4
billion in cash raised in December that will allow it to continue investing
in B2B start-ups.

But I don’t see another run-up in its immediate future.