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CMGI moves slightly despite downgrades

Shares of the Internet investment company close slightly higher despite downgrades from Wall Street analysts over uncertainty about the company's future.

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Shares of Internet investment company CMGI close slightly higher Tuesday despite downgrades from Wall Street analysts over uncertainty about the company's future.

CMGI closed up 31 cents at $14.81 after falling as low as $13.44 in regular trading on the Nasdaq Stock Market. The company has traded as high as $163.50 during the past 52 weeks.

Analysts from Merrill Lynch and Credit Suisse First Boston on Tuesday downgraded CMGI to the equivalent of "hold." The downgrades were in response to a conference call conducted by CMGI executives Monday night to give analysts guidance about future growth and to announce the folding of two of its operating companies.

"Given the current restructurings, weak advertising environment, and competitive infrastructure and enterprise software markets, we do not believe we will have better insight into the health of CMGI's current business until mid next year," wrote Merrill Lynch analyst Henry Blodget.

CMGI chief executive David Wetherell said Monday that the company will take a $90 million restructuring charge and will sell or shut down its online entertainment service, iCast, because of heavy capital costs and an unclear date for profitability.

Wetherell, speaking during the conference call, said the company would seek buyers for iCast as it "winds down its operations." If CMGI does not find a buyer, it will close the business by the end of January.

Wetherell said free Internet service provider 1stUp.com will also close its doors.

Workers at iCast's offices in Los Angeles, New York and San Francisco, about 75 employees in all, were laid off Monday, according to iCast spokesman Stuart Zakim. The estimated 150 staff members at iCast's Woburn, Mass., headquarters will stay on longer.

iCast.com will be maintained for the next 30 days with content updated regularly, said Zakim, who added that the company will honor all its partnership commitments. The "wind down" will probably take at least two months.

"In 60 days, iCast will cease to exist," Zakim said.

Sources close to CMGI told CNET News.com last week that News Corp. was approached by CMGI and iCast executives in hopes of selling the company. Those talks broke down, and the companies may instead pursue a marketing partnership.

Like iCast, Andover, Mass.-based CMGI will wind down 1stUp.com while it seeks a buyer. Wetherell added that CMGI will try to move its customers to another free ISP if it cannot find a buyer.

"Our intention is to divest 1stUp.com and exit the advertising-supported Internet access business," he said.

Wetherell attributed the move to the downward trend in online advertising rates, the "insurmountable" capital investment required to continue the service, and the extended time frame to profitability. 1stUp.com runs free Internet access for several high-profile partners including AltaVista, Lycos and Excite@Home.

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CMGI's troubled times
Phil Leigh, analyst, Raymond James & Associates
CMGI's announcement Monday signifies the company's first attempt to slip away from online advertising. iCast and 1stUp.com rely primarily on online ad revenues, as do media operations AltaVista and Engage. AltaVista has tried to step away from its reliance on online advertising by focusing on its enterprise search business.

The situation is critical for CMGI. Once a Wall Street darling, the company has seen its stock plummet nearly 90 percent over the year, from a high of $163.50 a share to around $15.

The company's stock woes are largely attributed to the souring market for Internet companies. Because much of CMGI's business centers on developing companies and spinning them out for high-flying public offerings, it has become one of many sacrificial lambs for Internet stocks.

So far, the company has stuck to promises to try to whittle down costs and turn its divisions into profitable businesses. CMGI has slashed a bevy of jobs throughout its divisions. In September, its advertising network, Engage, laid off 13 percent of its work force; AltaVista cut a quarter of its staff; and iCast reduced its staff by 10 percent.

CMGI divisions have seen several CEO departures as well. Just last week, Engage chief executive Paul Schaut resigned. AltaVista CEO Rod Schrock stepped down after announcing the company's first-quarter sales were weaker than expected. And 1stUp.com CEO and co-founder Charles Katz also has resigned to pursue other opportunities.

Adding to the see A News.com webcast: Dot-coms: Down and out?company's woes, several CMGI venture capital investments have foundered. Last week, health products retailer MotherNature.com closed its doors--a day after furniture retailer Furniture.com said it would fold. In early October, comparison buying guide Productopia shut down.

CMGI said it expects year-over-year growth to increase by 80 percent to 90 percent. It said it anticipates that four out of five of its operating segments will be profitable by the end of 2001.

In a statement, CMGI said it expects to incur restructuring charges of $8 million to $10 million for the quarter ended Oct. 31 and another $75 million to $80 million in the quarter ending Jan. 31. As of Monday, CMGI said it had $940 million in cash and $210 million securities that are available sale.

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