What Is CMGI Worth?

SAN FRANCISCO -- Remember the good old days? We were young and bold, Internet stocks were younger and bolder, and CMGI (CMGI:Nasdaq - news - boards), just a few years out of the gate, was the boldest of them all.

It was early 1999, and CMGI was held up as one of the best-performing stocks over the last five years, having climbed an unimaginable 6,933%. Investors often didn't know what CMGI was -- but they didn't care. To many, it was a singular vehicle for Internet investment; they saw this Internet conglomerate as an Internet mutual fund, a one-stock sector, one-stop Internet shopping.

That was then, but this is hell. Shares of CMGI started the year at 128 7/16, but now trade at 37. And, most intriguingly, the question that once propelled CMGI is now an anchor around its neck -- What is CMGI? Incubator? Operator? Procrastinator? Instigator?

How The Mighty Have Fallen CMG trades for less than the sum of its parts, analysts say

Source: Lazard Freres analyst Luke Fichthorn

Now, six and a half years after its IPO, management of the Andover, Mass., company is trying to come up with a lucid answer to that question.

"We're simplifying the story," says CMGI Chief Executive David Wetherell. "Our goal is to make it easier for the Street to keep track of how we're doing."

Here's the Plan

As such, Wetherell is embarking on an ambitious twofold project. First, CMGI is going through a wholesale restructuring of its financial reporting. Second, CMGI, which has been one of the Internet's most aggressive acquirers and incubators, has been quietly shedding and merging the dozens of companies under its umbrella.

"We started about eight companies in the last 18 months and acquired about 30," says Wetherell. "But now we're down to 17. So this isn't a new strategy -- we just haven't made it public until now."

It's an acknowledgment that no one could figure out just what the company was up to. Prudential Securities analyst Paul Merenbloom, a CMGI bull, humorlessly admits as much in his research notes on the company, with the caveat "we value CMGI on a sum-of-the-parts basis noting the impracticality of maintaining financial models for each unit." (Prudential hasn't participated in underwriting for CMGI.) In other words, if CMGI won't tell you how it's doing, there's no way to figure it out on your own.

But the daze of confusion may soon pass. Where CMGI once reported only two revenue categories -- Internet and fulfillment -- it's now going to break out revenue from five businesses: advertising and marketing, consulting, e-commerce and fulfillment, enabling technologies and infrastructure and its well-known venture capital arm, @ventures.

"Our goal is to have no more than two businesses per segment," says Wetherell. "Preferably, we'll see one. This all was done strategically to build certain business in certain areas."

Is It an Incubator?

The most common misconception about CMGI is that the company is an Internet incubator. In part, it's a victim of the successes of the @ventures unit, whose progeny include Lycos (LCOS:Nasdaq - news - boards) and Ventro (VNTR:Nasdaq - news - boards).

The incubator moniker is one Wetherell has been actively trying to shed for more than a year, yet the market remains fixated on that aspect. So when the initial public offering window slammed shut this spring, incubators became incinerators, and the value of Internet Capital Group (ICGE:Nasdaq - news - boards), Safeguard Scientific (SFE:NYSE - news - boards) and Xcelera.com (XLA:Amex - news - boards) plummeted. The debacle around the July IPO of divine Interventures (DVIN:Nasdaq - news - boards) seemed to seal CMGI's fate.

But Wetherell has been arguing that his company should be valued on its ability to generate revenue -- not IPOs. And he says the various businesses are on their way to profitability.

"The portals segment will be profitable by Q4," he says. "@ventures and consulting are profitable now. Marketing will be profitable by Q4. E-commerce consists of SalesLink, which is profitable, and uBid, which will be profitable by Q4. So four of those five segments will be profitable by year's end." By showing profitable segments within the company, CMGI is clearly hoping that it will benefit when compared with unprofitable companies across the Internet aisle.

Showing Both Sides

Lazard Freres analyst Luke Fichthorn says that could go a long way toward showing off CMGI's strengths -- and weaknesses. (Larzard is a CMGI underwriter.)

"This is the first attempt to show the market that they are not a B2C play," says Fichthorn. "At least two of these segments are out of favor: advertising and e-commerce. So this is a chance for CMGI to prove they have something growing like a weed. Until now, their approach has been 'I swear go God, this business is growing fast.' But now we'll be able to see it."

And to make sure Wall Street sees it, Wetherell says management is going to make some trips to New York to try to educate money managers about the company's story, as well as hosting an analysts' day in early September. These events could provide some badly needed momentum for the stock.

Ironically, the recent crack in the IPO window could also help CMGI. The delayed IPO of AltaVista looms -- and is even more likely now that AltaVista says it will be profitable by year-end. An IPO is also imminent for CMGI Solutions, the company's profitable consulting arm.

"The goal is to have the banking team done in the next few days," says Wetherell. "We're really pleased with that one and it's time to take it public. And it's time to do that with AltaVista. It was a bad market in the spring, and the summer is never a great market, so why not wait to the fall until it's closer to profitability."

CMGI investors, however, are surely tired of waiting. And it's starting to look like that wait may be over.

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Cory Johnson files weekly from TheStreet.com's San Francisco Bureau. In keeping with TSC's editorial policy, he neither owns nor shorts individual stocks, although he owns shares of TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Johnson welcomes your feedback at Cory Johnson .

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