Pushing for Profitability, CMGI Strikes a Blow for Clarity

In the land of Internet stocks, where the phrase "path to profitability" has become a sacred chant, you're never too big to get religion.

That was the theme of CMGI's (CMGI) Thursday morning conference call with analysts, following the announcement of the company's reorganization into six lines of business.

CMGI Chairman and CEO David Wetherell reiterated on the call that in terms of revenue, CMGI is bigger and faster growing than Internet bellwether Yahoo! (YHOO). But his comments and the company's reorganization served as stark reminders that size, growth and a bushel full of venture capital investments make for a pretty dim halo if you can't convince people you want to be saved from the hell of unprofitability. With the stock down some 75% from its high, CMGI is doing all it can to appeal to bottom-line watchers, though at midday Thursday investors weren't taking the bait: The stock was down $1.88, or 4%, at $44.81.

The Greatest of These Is Clarity

So seeking to persuade the market that CMGI's style is penny-pinching, not prodigal, Wetherell and his followers are making a number of moves to simplify its structure and focus on profitability -- and changing how the company reports its results so that investors can get a better idea of what the company is up to and how well it does it.

The No. 1 focus, Wetherell said in the call, was "improved path to profitability" -- the P2P mantra being one he repeated several times throughout the call.

To do that, CMGI is doing what it said it's been doing already: reducing the number of moving parts among majority-owned companies. Once it had 41 operating companies and now it has 17; eventually, it will go down to five to 10 companies, either by merger or by selling some off.

From Two Arms to Six

What's new is how CMGI is going to be organizing this consolidation. Up until now, it has divided the firm into two areas: on the one hand, its @Ventures venture capital investment arm and on the other, its majority-owned operating companies, including the AltaVista portal and the Internet advertising firm Engage (ENGA).

It's planning to shuffle the VC operations and the 17 (and soon fewer) operating companies into six business segments: E-Business and Fulfillment, Search and Portals, Infrastructure and Enabling Technologies, Internet Professional Services, Interactive Marketing and Venture Capital,.

Each of these segments, says Wetherell, represents opportunities where the company believes it can grow and succeed. "We think we have carved out areas where we can be a leader. Or are a leader," he said. In part, that involves merging different companies in each segment and eventually taking the resultant company public. For example, he said that SalesLink -- which he said was profitable -- and uBid.com, the two companies in the new E-Business and Fulfillment line, could be combined and go public.

Let Us Facilitate

Another measure the company is taking to smooth the P2P is to appoint what Wetherell tentatively (and awkwardly) labeled "lines-of-business representatives" for each of the new lines -- people who wouldn't have profit-and-loss responsibility for their respective segments, but would act as "facilitators and observers," in part by sitting in on CMGI board meetings. CMGI's @Ventures will also have a representative for each of the five operating business lines so that the company can better coordinate its venture investments with its day-to-day operations.

To help investors get a better view of progress of the new structure, CMGI will be making a major change in how it reports its finances. Starting with its fiscal fourth quarter, which ended July 30, the company will report separate results for each of its six business segments, including revenue, operating expenses and operating profit (or loss, as the case may be). The report is due Sept. 21.

Previously, the company (like Yahoo!, among others) broke out no information about its operating companies (beyond filings by public or slated-to-be-public companies like Engage, AltaVista or NaviSite (NAVI)). The move, says Wetherell, will make it easier for Wall Street to follow the firm, and it might stoke the company's appeal to retail investors. "It's easier for analysts to write about five or six segments," he said, "than 17 operating companies."

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