Business-to-business e-commerce stocks this year have space-shot to the stars and fallen wounded to the ground. So too Internet B2B incubator Internet Capital Group, with a wallet-full of the beaten-down stocks, scrapes 52-week lows. While the market has certainly -- ahem -- revalued ICGE and other incubators' portfolios of companies, it may have created some bargains.
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Business-to-business online market incubator Internet Capital Group (Nasdaq: ICGE) announced a 35% staff cut and fourth-quarter charge between $25 and $30 million, reflecting weaknesses among its portfolio of B2B market-making companies. This news joined the company's third-quarter loss of 94 cents a share, 17 times last year's 76 cents. Trading this morning knocked the stock as low as $10.50, over a third off from yesterday's close of $16.25 and a 95% lead ball from its 52-week high of $212. Parachuting looks good compared to this. Will cut jobs and narrow focus What's the problem with mom and the babies? But ICGE hasn't birthed a public company since March, due to the share price drop in companies using the Internet for most or all of their business -- and competition in the B2B Internet space. Like the Internet retailers that reproduced like rabbits and are now swarming lemming-like to their deaths, too many companies making or serving B2B markets fight over too little action. So the market has voted bombed-out future prospects for ICGE's portfolio companies. Ms. market may have overreacted Value in other incubators too? Just as the market's passion for incubators was fueled with all the substance of champagne bubbles, so too its rejection of ICGE and its siblings may be emotion, not substance. Check 'em out, and share your results on the ICGE discussion board!
Company spokesperson Michelle Strykowski said that 24 of the 50 jobs to be dumped will be vice presidents or managing directors. And the asset write-off of $25 million to $30 million, including $4 million to $5 million in cash, will pay for the cuts. To circle the wagons, the company plans to favor the 15 companies in which it holds an average stake of 37%. It also will not lead financing for -- and maybe not provide anymore bucks to -- its other 45 non-public holdings.
ICGE's large nursery contains 80 companies involved in all phases of making and supporting vertical and horizontal online markets. (For more info, I've found very helpful Paul Commins (TMF Buster) bang-up Rule Breaker B2B column and the for-sale Internet Report on Internet incubators.) ICGE supplies capital and reaps hoped-for benefits when its baby companies leave the crib sell their own shares. The company's value at any time reflects both the potential prospects of its infants and the real market value of its publicly held companies.
Investor sentiment may have gone overboard. Take just one of ICGE's holdings, 29%-owned high-profile VerticalNet (Nasdaq: VERT), a company which drives traffic to industrial trading communities.VerticalNet's stock has nose-dived from $148.38 to close yesterday at $24.38, but its revenues have been doubling quarter over quarter and were up 30% to $73.7 million in the last period. And it's slated for profitability next year. ICGE's VerticalNet stake is worth about $750 million, which with today's $2.8 billion ICGE market cap suggests that if ICGE's huge stable has any potential, the stock may have some upside.
Investors may want to examine not only ICGE, but other Internet incubators whose stocks have been shot at dawn: CMGI (Nasdaq: CMGI), down 85% from its 52-week high to close yesterday at $21.81, ICGE 30% owner Safeguard Scientifics (NYSE: SFE), off 81% to $18.5, and Divine Interventures (Nasdaq: DVIN), shaved 76% to $3. First, compare the incubator's market value with that of its portfolio companies. Then comes the tricky part: Divining the future prospects of still-private companies in the portfolio. Overall, it's art mixed with financial analysis.
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