In shedding entertainment website iCast and free ISP service 1stUp.com, CMGI CEO David Wetherell hopes to give his stronger businesses a "longer runway" to profitability. The skeptics are still numerous, many of them doubting that CMGI can reach profitability by the end of fiscal 2001.
 |
|
|||||
|
||||||
|
||||||
By
Honestly, who has ever really been able to fully understand this company? What it does, what it seeks to accomplish? Like the alien creature in the movie Predator, CMGI (Nasdaq: CMGI) has constantly shifted and eluded investors' understanding. Just when you think you can pin it down... bam! It's slipped through your hands again. The Internet incubator/operating and development company/venture capital firm revealed in a conference call after the bell yesterday that it's giving up on two more of its higher-profile companies, entertainment website iCast and free ISP service 1stUp.com. Chairman and CEO David Wetherell says if he cannot find "strategic buyers" for these companies, he will wind them down in an orderly manner, perhaps transferring customers to other services. This latest restructuring process is expected to cost the company some $90 million. Wetherell says CMGI is fortunate to be in a position to make these moves, which should give its other, more successful companies a "longer runway" to achieving profitability. It should be noted that any venture capital or incubator business fully expects some of its companies to fail. Some 80% of all start-ups fail anyway, and at the time CMGI invested in these companies, their business models were unproven. Remember the scare the free ISP craze threw at America Online (NYSE: AOL)? The question is whether the loss of iCast and 1stUp.com will hurt CMGI's overall synergistic efforts as an operating company. Surely Wetherell had a place for them in his grand scheme, though they probably didn't have major parts. Both were hurt by the online ad crunch, which greatly extended their time line to profitability. 1stUp was one of the fastest-growing ISPs in the country, but, Wetherell says, "We believe that the investments required to be successful in this marketplace are insurmountable given the heavy capitalization required and the downward trend on CPM rates for this type of service." Management says it expects four of the company's five segments -- all but the infrastructure and enabling technologies segment, of which 1stUp was part -- to be profitable on an EBITDA basis by the end of fiscal 2001. It offered guidance for year-over-year revenue growth of 80% to 90%, and says it has a strong cash position -- enough for 30 months of operation without having to raise outside money. A few analysts downgraded the stock on the heels of the conference call, and although the market is reacting somewhat mildly today, the stock is down more than 90% since the beginning of the year. Now the question for CMGI investors, this writer included, is whether CMGI can make good on its promise to turn a profit by the end of fiscal 2001. If it does, what will the company look like then? How will it be valued? Many of us thought Wetherell would be able to grow CMGI right along with the Internet. Although it never seemed to have the top dog in any particular area, we thought its parts would fit together so well it would be one of the major players when the shakeout was over. While that's still possible, the skeptics, once outnumbered, are now out in force -- even at a time when Wetherell says all efforts are focused on what the market is now demanding from the dot-coms: profitability. Your Turn:
What do you think? Share your thoughts on our CMGI discussion board.
RSS Headlines
Fool UK
