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THE DAY AHEAD: CMGI, then and now

COMMENTARY -- When times get tough, the "good ol' days" tend to look a little better. Just ask Internet incubator CMGI (Nasdaq: CMGI). Here's a company that had Wall Street, and plenty of individual investors, believing that profits didn't matter, stocks could only go up and connecting a bunch of disparate Internet companies in a network was a viable business model.

Now the company is an "entity that investors do not seem to want at virtually any price."

That reversal of fortune will make for an interesting CMGI shareholder meeting Wednesday at noon EST (hear Webcast). Investors that were giddy last year will be peeved this year. To share the pain, Engage (Nasdaq: ENGA) and NaviSite (Nasdaq: NAVI), also known as CMGI's kids, are also holding their shareholder meetings.

Just a few months ago, CMGI could walk into the offices of smaller companies and dictate its own terms for acquisitions. One CEO we recently spoke with said CMGI was beyond arrogant when it tried to buy his company a few months back. And why not? CMGI had the currency to do whatever it wanted.

Now CMGI is a company that is taking hits from all sides and trading at a 52-week low. Cutting costs is the CMGI mantra now. It can't give guidance because it doesn't have much visibility, and CEO David Wetherell doesn't look like much of a genius anymore. As for CMGI's most recent quarter, we could pick through the numbers, but why bother? CMGI lost tons of money and burned through about $176 million in three months (and that doesn't include the $50 million it invested in NaviSite). Its goal is to burn through about $45 million a quarter in the long run. I believe companies should always aim high.

CMGI talks the profitability game, but can't offer any specifics -- at least until January (investors hope). Even analysts have turned, but some still have a few side effects from drinking the CMGI Kool-Aid. Steven Frankel, an analyst at Adams, Harkness & Hill, noted that the company had no good news but had OK quarterly results last week.

Yeah, it's OK if a company posts a fiscal first quarter net loss of $636.5 million on revenue of $366 million. I just went to the bottom line because I couldn't make out heads or tails of CMGI's latest earnings release. The good news is that CMGI has enough money ($800 million in cash, $134 million in tradeable securities and $802 million in other holdings, namely Engage and NaviSite).

Perhaps the most interesting thing regarding CMGI is how perceptions have changed.

Let's take a look at Robertson Stephens analyst Lowell Singer's take on CMGI from June to December.

Lowell, circa June 14, 2000: In a report titled "Reach and revenue extending, validating the incubator model in our view," Lowell said the net asset value of CMGI's properties would prove conservative. Lowell rated CMGI a "buy."

Lowell, circa Dec. 15, 2000: In a report titled "Reports Sequential Downturn In Revenue; Assuming Coverage and Downgrading Firm Rating to Long Term Attractive on Lack of Business Visibility," Lowell cut CMGI from "buy" to "long-term attractive."

June 14: "CMGI has legitimate plans to build at least three very large infrastructure businesses, demonstrating the incubator models' ability to fund new ideas at a low cost."

Dec. 15: "CMGI continues to focus on building the company around five operating businesses. We believe that the shift in focus could allow the company to reduce cash burn and reach profitability more quickly."

June 14: "We believe a number of subsidiaries are well on their way to profitability over the coming 12 months, including CMGI Solutions, Engage, NaviSite and AltaVista."

Dec. 15: "We believe that 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, could drive risk to our estimates during the next few quarters."

June 14: "We estimate CMGI's current asset value is $97 per share on a market value basis. Based on the pace of future investing activity projected, we believe we may have the opportunity to raise our asset value estimate substantially."

Dec. 15: "We encourage investors to remain on the sidelines until we see incremental evidence of CMGI's success in its new operating strategy."TDAIN

• Analysts skeptical of CMGI targets
• CMGI loss smaller than expected
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