THE DAY AHEAD: CMGI can''t fool Wall Street twice

4 min read

COMMENTARY—CMGI didn't do itself any favors Tuesday when it unveiled its second-quarter results and guidance for the rest of the fiscal year. The revelations are hardly the stuff that stock spikes are made of and raise far more questions than they answer.

This isn't a good thing considering most of the analysts following the company didn't even bother to offer an educated guess as to the company's performance ahead of the results because CMGI executives did such a good job of keeping them completely in the dark.

Those few who actually stuck around to listen to the conference call/dog-and-pony show that Chief Executive Officer David Wetherell and Chief Financial Officer Andy Hajducky put on Tuesday afternoon were probably wondering why they bothered.

Do you want the good news or the bad news first?

That's what I thought.

Wetherell's prediction that four of its five business units would reach profitability—on an EBITDA basis—by the end of fiscal 2001 has gone out the window. He and Hajducky ducked the question during the Q&A session, saying they need to "get the budget information" from their various affiliates and will provide an update sometime in May.

It says here the company will be lucky to get two of the units to profitability by the end of the fiscal year. And there's a good chance there might not even be five units to worry about by this time next year.

Considering CMGI now expects its third-quarter sales to fall at least 15 percent from the $342.7 million it recorded this quarter and that fourth-quarter sales will only improve between 3 percent and 5 percent from those lowered estimates, it's safe to say the company isn't getting the traction it was hoping for back in November when it first made that bold prediction.

Dumping NaviSite (Nasdaq: NAVI), its struggling Internet application and Web-hosting services property as well as AdForce and Activate, a provider of Internet broadcast services, will help stem the bleeding, but it's not going to be enough.

Take a gander at these numbers:

  • Sales for its e-business and fulfillment segment (read: uBid) improved to $189.5 million in the quarter, up a whopping 0.48 percent from the first quarter when it recorded sales of $188.6 million.

    Meanwhile, the segment's operating loss—excluding charges—rose to $5.7 million from $3.5 million just three months ago.

    And uBid is considered one of CMGI's truly valuable franchises.

  • Internet professional services (read: Tallan) watched its sales slide from $33.3 million to $27.5 million in the third quarter. However, its operating income did improve to $2.4 million from $1.6 million, save charges.

  • Infrastructure and enabling technologies (read: NaviSite, 1stUp.com, etc.) sales stormed up a whole $900,000 from the third quarter to $36 million. Unfortunately, that segment lost $98 million this quarter compared to $92.3 million last quarter.

  • Search and portals sales (read: Alta Vista, iCast, etc.) fell to $55.4 million from $60.4 million. On the bright side, the operating loss also fell to $41.4 million from $60.4 million.

  • Interactive marketing sales (read: Engage and yesmail.com) slid to $34.6 million from $48.7 while the operating loss was trimmed from $58.5 million to $49.8 million.

    By my count, that's one profitably unit—which actually had the largest percentage decline in total sales of the bunch—three segments running at least $41 million in the red and the e-business and fulfillment segment which is hovering just below the break-even mark but only posted that paltry 0.48 percent sales growth this quarter.

    Call me na?ve but in this economic climate with dot-com stocks being delisted left and right and words like bankruptcy and layoffs dominating the business headlines, where does CMGI think this momentum is going to come from?

    Oh, I almost forgot the "good" news.

    CMGI is delighted to tell investors that while it did burn through another $185 million in cash this quarter, it's optimistic that it will cut that burn rate to around $80 million a quarter by year's end. With any luck, it should have $500 million of cash on the balance sheet by the end of the fiscal year.

    This is good because it means the company will have enough cash to survive—rather—sustain operations for the next two years.

    Of course, just like the profitability predictions, that forecast is subject to change at any time.

    How humbling it must be for Wetherell to write off more than $2 billion in what he called "intangible asset impairment charges" this quarter for all the garbage dot-com acquisitions—with the possible exception of Alta Vista—he made last year.

    Truth is Wetherell doesn't have any better idea what his company will look like in two years than he did 18 months ago when he was on top of the world. Or even if there will be a company in two years.