As an ex-shareholder, I found it bittersweet to review CMGI's (Nasdaq: CMGI) third-quarter earnings and see what the company has been up to recently. Now mostly a supply chain management firm, the company is no longer the Internet powerhouse it was around the turn of the millennium, back when it was considered one of the "Four Horsemen of the Nasdaq," along with Amazon (Nasdaq: AMZN), Yahoo! (Nasdaq: YHOO), and eBay (Nasdaq: EBAY).
Indeed, the stock price is now in the $1 range, far below even what I paid for the CMGI polo shirt that still hangs in my closet. Also, former highly touted CMGI investments such as Navisite, Engage, 1stUp, and iCast (from the @Ventures capital funds, which the company still operates in a much diminished fashion) have all failed without so much as a whimper, just a simple footnote in the 10-K.
CMGI even made an ill-fated move to acquire naming rights for 15 years to the New England Patriots' new stadium in 2000. Then, devastated when the bubble popped, it quietly relinquished those rights in 2002 but remained on the hook for $1.6 million a year till 2015. David Wetherell, the ex-Internet visionary and former billionaire, still remains with the company as the chairman of the board and a director, but stepped down as CEO in 2002.
So much for reminiscing. What is the company up to now?
As a supply chain operator, CMGI is struggling. Despite $1.1 billion in revenues, it can only manage gross margins of around 11% and barely broke even with profits of $21 million last year. The third-quarter earnings report released yesterday was no different, with an operating loss of $1.7 million. Sure, the net income line was positive to the tune of $21.7 million, thanks to "liquidity events" with WebCT and Realm Business Solutions, but the underlying business is still not profitable. Management viewed the quarter as making "significant progress" toward penetrating key vertical markets, but this investor wants to see some real green -- profitability, that is. Perhaps next quarter CMGI will finally deliver the goods.
As my thoughts turn to valuation, I realize this company will probably have a hard time making it back into my portfolio. While some hold out hope that the @Ventures properties are worth something, keep in mind the entire venture portfolio is made up of just 19 companies and roughly $28 million in capital. This unit has made only one investment since 2003 (time to slow down, guys!). The real value in the company, if any, has to be driven by the supply chain management operations, and while gross margins are expected to improve by a few percentage points in 2006 -- to the 13%-14% range -- getting to any semblance of sustained profitability is bound to be a challenge. I wish them luck and, maybe if lightning strikes, shareholders will be happy once again.
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Stephen Ellis owned shares of CMGI in the 1999-2000 timeframe, but thankfully no longer does. He does not own shares of any companies mentioned.
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