If you're a fan of puzzling earnings releases, last night's report from CMGI (NASDAQ:CMGI) may strike your fancy. Early on, the release included bulleted financial metrics, including:
- "Total Operating Loss, Improved 79%"
- "Net Income, Up 282%"
How can posting a narrower operating deficit create a situation where profits nearly quadrupled? Well, this is dot-com incubator CMGI we're talking about. As far as rare occurrences go, this is a pretty common sighting.
Nurturing promising investments before cashing out to the likes of Yahoo! (NASDAQ:YHOO) and Time Warner's (NYSE:TWX) AOL for sizeable returns, CMGI has often turned onetime realized gains into fiscal Visine by taking the red out of operating shortcomings.
This time it was Yahoo!'s consumption of sponsored search specialist Overture that helped pad CMGI's October quarter. You can't fault CMGI. Even Coca-Cola (NYSE:KO) has a fizz-filled history of recording gains by flipping bottling operations for sport and profit. Besides, if you're going to establish yourself as a venture capitalist, what better way is there to advertise than by proclaiming your winnings from the quarterly soapbox.
But you can't value CMGI based on these paradoxically frequent onetime accounting events. Anyone that tries to tell you that CMGI has turned the corner of profitability based on last night's showing is jogging down the wrong block. However, the improved operating loss is worth noting. Before a laundry list of charges, the company posted an operating loss of $3.2 million from continuing operations. With a balance sheet flush with nearly $270 million in cash, this company isn't going away anytime soon. But is it going anywhere else?
These aren't the go-go days of the late 1990s when CMGI and fellow incubator Internet Capital Group (NASDAQ:ICGE) were tiptoeing through the tulip bulbs. While the stock's price looks lean, the company's float has put on a little weight. With more than 400 million fully diluted shares right now, CMGI may seem out of favor, but it's at a price tag of roughly $800 million.
Backing out the cash to arrive at the company's enterprise value, it's trading for just a little more than its trailing revenue over the past year. That's reasonable -- on the surface. Now, if only the company would improve its operations to the point that we could gauge it on a proper earnings multiple, too. Then this incubator would really start heating up again.
How did CMGI stake a meaty claim in Yahoo!'s acqusition of Overture? Well, it sold AltaVista to Overture, just before Yahoo! came a-calling. So what do you think of Yahoo! these days? Is it still the portal of choice, or is Google worth fearing? All this and more -- on the Yahoo! discussion board. Only on Fool.com.
