CMGI slips on restructuring news

Jan. 2, 2002 4:43 p.m. PT

2 min read

CMGI Inc. (Nasdaq: CMGI) tumbled 9 percent Tuesday on news that the company will sell off its iCast and 1stUp.com businesses. The company plans to reach profitability by the end of fiscal 2001.

Shares in the company, whose operations and investments span 70 Internet companies, were off 0.88 to 13.62 Tuesday. The stock tumbled on a downgrade ahead of Monday's news.

Executives for CMGI said the moves will result in restructuring charges of $8 million to $10 million during the fiscal first quarter that ended Oct. 31 and $75 million to $80 million during the second quarter. Most of the charges stem from CMGI's exit from Web site iCast and 1stUp.com, a free Internet service provider, and restructuring moves at Internet marketer Engage Inc.(Nasdaq: ENGA).

Analysts weren't enthused by the move. Analyst David S Dusenbury at Credit Suisse First Boston downgraded the stock to "hold" from "buy." Dusenbury also downgraded similar incubator Internet Capital Group Inc. (Nasdaq: ICGE) to "buy" from "strong buy."

"While initial plans have been constructed and executed, we are unclear what CMGI will look like when it completes its transitions to an operating company, therefore making it difficult to see near-term upside," Dusenbury wrote in a research note. "While the shares of CMGI continues to reach new lows, the fact is we find it difficult to find support levels for the stock."

CMGI was also downgraded to "long-term accumulate" from "long-term buy" by analyst Henry Blodget at Merrill Lynch. The near-term rating remained "accumulate."

Analyst R. Alexander at Wit Soundview was more optimistic, maintaining a "buy" rating on the stock. In accordance with revised guidance and as a result of restructuring and divestiture initiatives, Alexander decreased his revenue estimate for fiscal year 2001 to $1.65 billion from $2.51 billion.

"We believe that as CMGI is able to achieve positive EBITDA (Earnings before interest, tax, depreciation and amortization) in 4 of its 5 operating segments by the end of fiscal year 2001, investors should begin to value and reward the company based on the performance of its underlying operating assets," Alexander added.