CMGI Offers More Bad News on the Future

CMGI (CMGI Quote - Cramer on CMGI - Stock Picks) to Wall Street: Let's not, but say we could.

After telling investors four months ago that it would be cash-flow positive in four of its five operating segments by the end of its fiscal year, the incredibly shrinking Internet empire said Thursday evening that it could still hit that target, but wasn't making it a priority. "We believe that this approach may not be in the best interests of our shareholders," said CMGI Chairman David Wetherell on a conference call scheduled to discuss the company's financial outlook.

The Visibility

That wasn't the only bit of backtracking that CMGI made regarding fiscal 2001, which ends July 31. Two months ago, the company cut estimates, telling analysts it expected revenue to rise 80% to 90% in 2001, to $1.65 billion. But Thursday evening, the company said the cloudy economic environment was forcing it to back off that forecast, as well as other predictions. Among those: that it would improve its gross profit margin to 30% in its fiscal fourth quarter; that its fourth-quarter loss before interest, taxes, depreciation and amortization would be cut to $25 million; and that its cash-burn rate would be cut to $45 million per quarter by the fiscal year's end.

"We have limited visibility into the rest of our fiscal year," CMGI Chief Financial Officer Andrew Hajducky said Thursday night. The company says it will provide further details on fiscal 2001 on its March 13 call, discussing the company's second fiscal quarter ending Jan. 31.

CMGI, however, reiterated previous statements that the company would end fiscal 2001 with $600 million to $700 million in cash, and that the company has enough cash on hand to become cash-flow positive.

Grass Still Greener

CMGI's disclosures -- including its confession that the outlook for the near future remains a mystery -- indicate that after all the bad news that Internet companies have endured over the past few months, good times still don't look like they're right around the corner. In another measure of CMGI's continuing belt-tightening, the company said it was shutting down its ExchangePath subsidiary, a competitor to the more-popular PayPal service that allows people to send each other small amounts of money over the Internet.

In fact, for all of CMGI's discussion of limited visibility, the incremental bad news on the call wasn't a complete surprise. On Wednesday, CMGI's publicly traded Internet advertising subsidiary Engage (ENGA Quote - Cramer on ENGA - Stock Picks) suspended previous guidance that it would be cash-earnings profitable by July 31.

And back in November, one day after CMGI reset 2001 estimates, at least one analyst was already skeptical about the numbers. In a note on Nov. 14, Safa Rashtchy of U.S. Bancorp Piper Jaffray called the $1.65 billion revenue estimate "aggressive," estimating $1.51 billion instead. Rashtchy has a neutral rating on CMGI; his firm hasn't done underwriting for the company.

Ahead of the call, CMGI shares dropped 41 cents to close at $6.84, but fell to $5.76 after the call in after-hours trading on Island. Earlier in the day, the company disclosed that it would be cutting 200 jobs, or 25% of staff, from its AltaVista search engine and portal.