CMGI Earnings Preview: Has CMGI Tansformed Itself?

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Recently CMGI Inc. (CMGI-NASDAQ) announced that it will report earnings after the close on Monday, February 26, 2007 and will present at the Robert W. Baird Business Solutions Conference on February 28.  The earnings will drive the stock more than the presentation, and keep in mind that this is one that is a ‘cult stock’ and is widely followed for such a small stock.

It is too dangerous to actually predict earnings on an incubator like CMGI, but the company is far different than its incubator-only past.  It has actual operations and has signaled it is investing in other non-webby sectors.  It is trying to transform itself, and traders are making their various bets ahead of the earnings and ahead of their presentation next week.  Despite the obvious risks and stigma of the past there are some compelling issues worth considering.

The most interesting thing about its recent investments is that itinvested $3 million into a Cleantech company called H2Oil RecoveryServices, a company that solves operational and environmentalchallenges for the energy industry to expand products and services inthe natural gas industry.  H2Oil uses a patented technology to reclaimvaluable petroleum and clean water from the oil and natural gasexploration and production processes, cost effectively treating two ofthe industry’s most common waste products: tank bottoms and producedwater.  This is after the @Ventures unit added Rob Day (formerly withBain) to the firm as a Principal in @Ventures V, LLC, focused oninvestments in companies developing clean technologies, includingalternative energy, energy storage and efficiency, and waterpurification technologies.  This has been in the ongoing developmentsfor a while, but most on the street still think of CMGI as an InternetIncubator and this opens the door for more investments in newercompanies.

On February 15 CMGI named Matthew Dattilo as Chief Information Officer.He came to CMGI from Perkins Elmer with two decades of experience todirect further development of CMGI’s and ModusLink Corporation’s ITinfrastructure and the technology components of its supply chainsolutions.

Here is part of what James Altucher said at TheStreet.com on February 13, 2007CMGI has just about $200 million in net cash and a $647 million marketcap, and has become a growing — and highly profitable — IT servicesfirm…..The key thing for Renaissance in these positions is that it’salmost impossible for either of these companies to go out of business.If you have $200 million in cash, you have no debt, you’re stillgenerating $100 million in cash every year and you have an enterprisevalue of $400 million, you would have to make a lot of mistakes to gounder…..

The company even posted an actual operating profit last quarter.

We won’t know until Monday afternoon if that last earnings was a fluke or if itcan continue as a profitable entity, but that isn’t the only quarterthey posted profits.  Their balance sheet is actually in great shapeand not in ridiculous territory with a $715 million market cap if youconsider all of the embedded call options in 11 web and traditionalcompany stakes in the @Ventures unit,  Shares are actually just aboutflat with a 2% gain right now at $1.48 compared to December 4, 2006price of $1.44 after earnings.

Keep in mind that there are NO street estimates on this and anyonetrying to make major earnings predictions on the stock is either acorporate insider or they are playing the guessing game with a crystalball and a ouija board.  But if the company does manage to postpositive earnings again it will probably be a safe assumption thatthere be many more of the cult stock crowd traders that get futher andfurther into the guessing game.  Over the last 5 years, CMGI has madeit to as high as $3.00 per share, but this used to trade well over $100back in the dot,com bubble days.  Needless to say with the cult stockstatus, there are many traders and investors who still follow CMGI andit will likely be active ahead of its earnings.

Other companies that often get lumped in with CMGI are the likes of InternetCapital (ICGE-NASDAQ), Safeguard Scientific (SFE-AMEX), and HarrisInteractive (HPOL-NASDAQ), and Harris & Harris (TINY-NASDAQ).

Jon C. Ogg
February 22, 2007