Analysts skeptical on CMGI targets

CMGI (Nasdaq: CMGI) was off 6 percent Friday following its first quarter report. While most investment firms reiterated ratings on the stock, analysts questioned CMGI's ability to deliver on its promise for profitability by the end of the fiscal year without significant restructuring.

Shares were down 0.5 to 8.563.

CMGI reported Thursday a 3 percent sequential decline and a cash loss of 25 cents per share. Results were weak due to a slump in online advertising sales, which affected Engage (Nasdaq: ENGA), and the continued transition of AltaVista.

Adams, Harkness & Hill analyst Steven Frankel maintained a "buy" rating but referred to CMGI as an "entity that investors do not seem to want at virtually any price."

"The world has clearly changed as now the CMGI conference calls are dominated by discussion of retrenchments, layoffs and cash burn rates," the analyst added.

Given Engage's recent announcement that it is recasting its forecast for the year and will not issue guidance until January, there is no way to build a reliable earnings model for CMGI at this point," Frankel said. He also expressed doubt that the company could reduce EBITDA losses from $74 million this quarter to only $25 million in the July quarter, as management pledged.

Frankel said that the failure of Engage has taken away one of the crown jewels in the CMGI empire, but is positive on the possibilities of CMGion, which is working on content acceleration.

"We would not be surprised to see further retrenchment in the form of businesses being shut down or sold off," the analyst added. "Until investors can begin to analyze CMGI operating units on the same basis as other companies (clearly defined P&L metrics, etc.) we expect the stock to lag."

Credit Suisse First Boston analyst David Dusenbury maintained a "hold" rating on the stock, and saw a strong possibility of streamlining and restructuring ahead.

"Given publicly available information, it appears management will either have to realize higher revenue growth and/or additional operating efficiencies in order to be EBITDA positive in 4 of its 5 operating segments by the end of its current fiscal year," Dusenbury stated in a research note.

On a positive note, the analyst said CMGI is in a comfortable position with regards to cash, with over $1.1 billion in liquid resources.

"While it appears management is on the right path, the sheer number of moving parts cloud visibility in the near term. We look towards the next few quarters for greater clarity," he said.

Robertson Stephens analyst Lowell J Singer downgraded the stock to "long term attractive" from "buy" citing a lack of business visibility

He noted that the company's shift in focus -- which is centering it around 5 operating businesses: Search & Portals, Interactive Marketing, Infrastructure & Enabling Technologies, eBusiness & Fulfillment and Internet Professional Services -- is a positive move towards reducing cash burn and bringing the company to profitability more quickly.

He also praised the company's strong cash position, but downgraded the stock due to "unfavorable public markets, overall deterioration of dot-com businesses and weakness in the online advertising market, which many of CMGI s companies are dependant upon."

"We encourage investors to remain on the sidelines until we see incremental evidence of CMGI s success in its new operating strategy," Singer added.

Analysts are awaiting an update in guidance for 2001 from the company in mid-January.