| BUSINESSWEEK ONLINE : OCTOBER 25, 1999 ISSUE | ||||||||
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| COVER STORY
Should You Invest In the Companies CMGI Invests In? When CMGI's holdings go public, you'll want to choose wisely CMGI (CMGI), a kind of publicly traded Internet venture-capital fund, has grown to be a favorite of Internet investors who've applauded as several of the firm's early investments of just a few million dollars grew to be worth hundreds of millions in the public markets. Now, CMGI seems to be pumping up its IPO pipeline. In the past 18 months, it has brought a half-dozen companies public, including the first of its majority-owned businesses. Several more IPOs are expected early next year, among them a blockbuster -- AltaVista -- which CMGI acquired for about $2.3 billion last June. Gains in the share prices of CMGI spin-offs have certainly been good to shareholders in CMGI. But does the fact that CEO David Wetherell is so good at picking Internet startups and getting them all working in concert, mean that investors should also be clamoring for shares in the upcoming IPOs? Alexander Cheung, portfolio manager of Monument Internet Fund, which has CMGI as a core holding, doesn't think so. ''Given our exposure to CMGI, I'm happy that the IPOs have such a tremendous impact,'' he says. But he's still waiting to accumulate some of the recent CMGI IPOs at a better price. ''I'm watching them all, actually,'' he says. ''But I'm waiting, trying to get a good price to go in.'' RARE CHANCE. The question of whether to jump in on the IPOs is particularly relevant for CMGI shareholders, who through the company's Directed Share Repurchase Program, operated with online investment bank Wit Capital, can get in on IPOs of CMGI's majority-owned subsidiaries at the initial offering price -- something all too rare for individual investors. When Web marketing firm Engage Technologies (ENGA) became the first IPO in this program, however, it was so flooded with interest that many CMGI shareholders were shut out. ''The level of response exceeded what Wit or anybody could have envisioned or handled,'' says Paul Shaut, Engage's CEO. Since then, CMGI says the system has been repaired. Engage was priced on July 20 at $15 a share and closed on Oct. 14 at 34 3/8. CMGI expects that coming IPOs of its majority-owned companies will participate in the program as well but doesn't guarantee it. Of the majority-owned companies, NaviSite, which provides Web-site hosting and servicing, is next off the block and is expected to come public late this month. AltaVista is expected to be followed next year by MyWay (formerly known as Planet Direct), which allows visitors to create personalized Web portals, and NaviNet, which offers network services to Internet service providers. Here the catch: If you don't have at least 100 shares of CMGI or you aren't a big investor, there's little chance that you can get in on these IPOs at the offering price. And IPOs that come out of CMGI's @Ventures venture-capital arm aren't eligible, since CMGI owns only a minority stake in them. Of those, only MotherNature.com (MTHR), which sells vitamins and diet supplements on the Web, is currently in registration. But a ''handful'' of other @Ventures holdings are ready to go through the IPO process, says Brad Garlinghouse, a general partner with @Ventures. MIXED BAG. When looked at on a post-IPO basis, share-price gains in CMGI companies haven't all been dramatic. On its opening day of trading, Engage closed at $41, higher than it's trading now. Companies that came public out of @Ventures have been a mixed bag in terms of post-IPO performance. E-mail provider Critical Path (CPTH) has been a laggard, although many analysts think it's a good buy at current prices. Customer-service software maker SilkNet Software (SILK) and Chemdex (CMDX), which operates a network that enables businesses to exchange things like chemicals and lab supplies, have both enjoyed stock-price runups recently. Steve Harmon, chief executive of e-harmon.com, an Internet investment and research firm, thinks Engage is a good value at current levels and that Critical Path can fill a growing need for outsourced e-mail services. He also likes NaviSite. But CMGI's involvement should be just part of the decision, says Harmon, just as investors should always look at the pedigree of an IPO's venture funding source. ''Just because it is CMGI doesn't give it the magic touch,'' he says. Generally, though, ''CMGI has an unbelievable track record,'' says Michael Graham, an analyst with BancBoston Robertson Stephens, and having your money in a favored IPO or two makes sense. ''CMGI has so many investments, and so many contacts, and so many smart managers. If anything happens in the Internet world, they are going to know about it.'' But first and foremost, he thinks, investors should buy CMGI's stock. POTENT KICKS. Gains from IPOs and other deals don't get translated to CMGI's bottom line every quarter: Like most of its nearly 50 Internet holdings, CMGI often posts large quarterly losses. But when the one-time gains kick in, they're powerful. For its fiscal fourth quarter reported Sept. 27, CMGI showed earnings of $453 million, or $4.74 a share -- massive by Internet standards -- thanks mainly to a one-time gain of $661.2 million when the company's GeoCities investment was converted to Yahoo! common stock, as well as a gain of $81.1 million when Engage went public. It's no surprise that CMGI investors are excited about the offerings due out soon. Each one, and several are exciting, should lead to an increase in CMGI's value, says BancBoston's Graham. Most analysts value CMGI by adding up its share in publicly traded companies (see table below), plus an estimate for the potential market value of all its private holdings. Graham's ''aggressive'' estimate for CMGI on that basis is $139. CMGI closed on Oct. 14 at 104 1/4. The best bet for investors who want to take advantage of the company's skill at building Internet businesses is to buy CMGI shares. Then, if you want to make a bet on a coming IPO and qualify for the directed-share program, you've got a great way to get in at the opening price. CMGI's Stake in Public Companies Lycos 17% Critical Path 4% SilkNet Software 18% Chemdex 9% Engage Technologies 82% CMGI's Stake in Companies Expected to Come Public MotherNature.Com 13% NaviSite 90+% NaviNet 90+% MyWay.Com 90+% AltaVista 83% Data: CMGI By Amey Stone in New York _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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 RELATED ITEMS David Wetherell: Internet Evangelist COVER IMAGE: David Wetherell: Internet Evangelist CHART: CMGI's Rocketing Shares TABLE: David Wetherell's Internet Empire RESUME: David S. Wetherell PHOTO: David Wetherell, Age 5 One Big Happy Family--But for How Long? Lycos: The Chick That Didn't Fly the Coop ONLINE ORIGINAL: Should You Invest In the Companies CMGI Invests In? INTERACT E-Mail to Business Week Online | |||
