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CMGI tumbles as analysts question direction

Shares of the Internet incubator slip in morning trading after the company widely misses analysts' estimates and provides a murky view of the second half of the year.

Shares of CMGI slipped in morning trading after the company widely missed analysts' estimates and provided a murky view of the second half of the year.

Analysts maintained cautious ratings on the stock and struggled to produce estimates.

The stock slipped as much as 10 percent in morning trading, falling 41 cents to $3.50.

CMGI is an Internet incubator; it invests in start-ups and develops its own companies. It's been hit hard by the dot-com implosion, as the value of its investments has tumbled along with the stock market.

Tuesday, it posted a loss of $216.6 million, or 66 cents a share--excluding charges--on sales of $342.7 million. Most analysts had given up trying to predict the company's earnings because CMGI had stopped providing an outlook and because of the extraordinary nature of its charges.

Including charges, CMGI posted a loss of $2.56 billion, or $7.86 a share, compared with a net loss of $636.6 million, or $2.07 a share, in the first quarter. The charges include a $2.03 billion noncash impairment charge related to goodwill associated with its acquisitions of AdForce, AdKnowledge, AltaVista, Flycast and Yesmail.com.

Analysts struggled on Wednesday to make sense of the company's report.

Credit Suisse First Boston analyst Anthony Lorenzo initiated coverage with a "hold" rating, but said he could not yet set estimates or a price target on the stock.

Adams Harkness & Hill analyst Steven Frankel maintained a "buy" rating on the stock, but given the company's murky future, did not produce earnings estimates, saying that modeling the profit and loss at CMGI is a "fruitless exercise."

Robertson Stephens analyst Lowell Singer reiterated his "long-term attractive" rating. He set new loss estimates for the third quarter at $1.75 per share, for the fourth quarter at $1.67 per share, and for the year at $6.90 per share.

Analysts are particularly interested in how CMGI will manage to shift to being an operating firm from an investment company, whose income derives mainly from its investments.

"Management is struggling to determine the future shape of the company," Frankel wrote in a research note. "There will clearly be more divestitures along the way and CMGI could be a completely different-looking entity a year or two from now."

Already, the company's Activate and AdForce units have been put up for sale, and Tuesday CMGI said its NaviSite division has hired Goldman Sachs to explore strategic alternatives. CEO David Wetherell told analysts that the company would likely have only five to 10 operating companies by the end of the fiscal year, compared with the 12 it has now.

Sales for the fourth quarter should be only 3 percent to 5 percent better than the scaled-back third-quarter estimates. That's far short of the $387.5 million target established earlier this year.

"We encourage investors to remain on the sidelines until we see incremental evidence of CMGI's success in its new operating strategy," Singer wrote. "In the operating model, we believe that success hinges on CMGI's ability to manage cash, attract new customers, and drive toward profitability. Those are very different success drivers than existed nine months ago when cash was plentiful and profitability was less important to investors."