CMGI post huge loss, slashes sales estimates

3 min read

CMGI, the Internet incubator that's become the poster child for the dot-com implosion, posted another enormous loss in its second quarter and warned that its third-quarter sales will decline at least 15 percent from the $342.7 million it recorded this quarter.

To help offset the loss, the company said it is looking to sell some of its properties.

In the quarter, CMGI reported an operating loss of $216.6 million or 66 cents a share--excluding a myriad of charges--on sales of $342.7 million.

It's difficult to measure CMGI's performance in the quarter because the official First Call consensus estimate was based on only one analyst's expectations.

USB Piper Jaffray analyst Safa Rashtchy pegged CMGI for a loss of $2.07 a share in the quarter. It's unclear whether that estimate includes or excludes the huge charges the company had to withstand this quarter. Rashtchy was unavailable to clarify.

Including those charges, CMGI (Nasdaq: CMGI) posted a staggering net loss of $2.56 billion, or $7.86 a share, compared to a net loss of $636.6 million, or $2.07 a share, in the first quarter.

The bulk of that net loss comes from a $2.03 billion non-cash impairment charge related to goodwill associated with its acquisitions of AdForce, AdKnowledge, Alta Vista, Flycast and Yesmail.com.

"The (First Call estimates) are meaningless because you can't forecast any part of this company's business," said Steve Frankel, an analyst at Adams Harkness & Hill, ahead of the earnings report. "It's my sense that CMGI is about to be restarted again and when it does come back, I doubt it will have many of the pieces it has now."

CMGI shares inched up 6 cents to $3.91 ahead of the earnings report before falling to $3.78 in after-hours trading.

The stock has lost more than 95 percent of its value in the past year.

Fewer companies in the stable
During a conference call with analysts, CMGI Chief Executive David Wetherell said the company hopes to exit the fiscal year with "between five and 10" companies in its stable, down from the 12 it currently holds. He said CMGI will be focusing primarily on e-business fulfillment opportunities, software services and its venture capital arm, @Ventures.

He added that Goldman Sachs has been retained to find a buyer for NaviSite (Nasdaq: NAVI), CMGI's Internet application and Web-hosting services property.

Wetherell said CMGI was also looking to unload its marketing unit AdForce as well as Activate, which provides Internet broadcast services.

CMGI holds a majority interest in Engage Technologies (Nasdaq: ENGA) and NaviSite as well as several privately held online companies including uBid and Alta Vista.

Looking ahead: Earnings and burn rate
The Net incubator now expects to record third-quarter sales of between $280 million and $290, down 15 percent from the second quarter and well below the $366 million that First call is currently predicting.

CMGI now sees fourth-quarter sales improving only between 3 percent and 5 percent from the scaled back third-quarter estimates, meaning it will fall dramatically short of the $387.5 million target established earlier this year.

The lowered sales targets didn't surprise analysts who are far more concerned with the company's cash position and expected burn rate through the rest of the fiscal year.

Chief Financial Officer Andy Hajducky said CMGI burned through more than $185 million in cash in the second quarter. He said it hopes to trim that burn rate to between $75 million and $85 million a quarter by year's end.

"That's the big question right now," said Charles Grom, an analyst at Salomon Smith Barney. "How well can they cut that burn rate while generating some traction in the companies they hold. I wouldn't be surprised to see more consolidation within its current group of companies."

"We have enough cash to sustain operations for the next 27 months," Hajducky said during the conference call.

Last quarter, CMGI posted a loss of $74 million, or 25 cents a share, excluding charges, on sales of $366.1 million.

The stock peaked at $137 a share last March before falling to a low of $3.63 earlier this month.