The Day Ahead: CMGI lessens dependence on IPO market

Internet incubator CMGI made its name by developing startups and cashing in when they go public. Now CMGI is distancing itself from that image and the perception that it depends on the health of the IPO market.

There's a good reason for that -- the IPO market stinks for the most part. CMGI couldn't even get its highly anticipated offering of AltaVista out the door. For the record, AltaVista's IPO is still on, but the company is waiting for better timing and a clearer path to profits.

CMGI, Internet Capital and other incubators have gone out of their way to say they're not relying on the IPO market for cash.

"We're not dependent on the IPO market," said CMGI CEO David Wetherell.

If you believe that, the cynics would say you should look into buying the Brooklyn Bridge too. However, Wetherell may have a point.

CMGI turned a net profit in its third quarter because it sold shares of Yahoo!, Amazon.com and Open Market in the quarter. CMGI has now completely ditched its Yahoo! holdings, especially since AltaVista competes with Yahoo!.

The sales illustrate a common theme at CMGI. If you can't take it public, sell it. CMGI had Yahoo! shares because the portal bought GeoCities in early 1999. Amazon bought former portfolio company PlanetAll in 1998. And CMGI will make a nice profit if Terra Networks and Lycos complete their planned merger.

As if to drive the point home, CMGI's earnings conference call Tuesday night happened to coincide with eBay's acquisition of Half.com, a fixed-price auctioneer and a CMGI @Ventures portfolio company. It only took a few minutes for analysts to start asking about what CMGI would do with its eBay shares.

EBay said it will pay for Half.com in stock, using a formula that is expected to work out to between 4.6 million and 5.5 million of its shares. Based on eBay's closing stock price Tuesday of $68 a share, the total value of the deal should be between $312 and $374 million.

As long as CMGI has these 'liquidity events', it'll be able to fund future growth even if the IPO market goes belly-up for an extended period of time. Naturally, CMGI would prefer a strong IPO market so its stable of companies can bring in the bucks. CMGI had gains from the Vicinity IPO in its third quarter.

But there's also another reason CMGI is becoming less dependent on the IPO market. The company's @Ventures unit is becoming a smaller part of the business. CMGI is looking more and more like an operating company these days.

Majority-owned companies such as Navisite and Engage all contribute to the revenue pot. The company has also acquired uBid and a host of others to move traffic around its network.

The end result? Real revenue. In the third quarter, the company reported sales of $225.9 million, and Wetherell projected fourth quarter sales of "at least $370 million."

CMGI is onto this operating company kick so much it was even tossing around profit projections and launching a branding campaign. Its CMGI Solutions unit will turn a profit in the next quarter or so, AltaVista will be in the black in two to three quarters, and uBid and Engage will have earnings in 2002.

Of course, most of CMGI's developing businesses are not in the same profit ballpark, but you get the idea. The day is coming when CMGI won't need stock sales to report a profit.

Citrix sued

No profit warning and stock plunge is complete without the dreaded shareholder lawsuit.

Citrix was a no show at an investment conference last week and issued a profit warning Monday. The company said it would fall well short of analyst estimates.

Enter the lawyers. A Philadelphia law firm is the first of many that will try to squeeze a little profit from Citrix. In a class action suit, the firm alleges Citrix failed to disclose its problems.

Hello? Citrix disclosed them Monday, more than two weeks before its current quarter ends.

Citrix is only guilty of poor execution, which is fixable, and poor investor relations. Where was this law firm when Citrix was among the best performing software stocks since 1997?

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