Dueling Fools
August 04, 1999

RU4 CMGI?
The Bull Rebuttal

by Rick Aristotle Munarriz ([email protected])

Yard sale Pablo Picasso, step right up! Bill doesn't want to pay three times CMGI's existing public portfolio. Not gonna do it. Wouldn't be prudent. Never mind the 30 other companies in the CMGI cybercubator. Engage was probably insignificant to Bill a few weeks ago. Today, boom, it's a $1.5 billion company.

That's where Bill slips. Would you have paid three times for CMGI's portfolio three years ago? Back when all it had was $70 million in AOL stock, would you, could you, pony up $210 million? What about $600 million two years ago? You see, paying three times CMGI's publicly held stakes has been a bargain because that, in a sense, is the company's earnings growth. And it's phenomenal earnings growth. It's like buying Microsoft for $4 or General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> for less than ten bucks a share -- with even more upside.

I'll say it again. CMGI is a money tree. Bill? He's just a misguided lumberjack. He makes one good point -- that the abundance of Internet public offerings has helped quench the once insatiable demand of anything dot-com'd. However, isn't that the best reason to own CMGI? So you don't have to place all your eggs in one basket? So you can diversify with the company that continues to pick up tomorrow's heavyweights for pennies on the dollar?

Can my fellow Fool explain why CMGI's public portfolio is still worth about $3 billion despite the recent steep correction in online companies? The reason is that cookie monster Engage was rolled out last month and now accounts for $1.2 billion in CMGI's value that had slid in other holdings. Get it? CMGI held its own when sentiment ran rancid. What's Bill going to say when optimism completes the u-turn? It will you know. It always has.

CMGI is not just another venture capital company. Take Adsmart, one of these seemingly worthless unhatched eggs in Bill's argument. That Internet advertising company is serving up two billion monthly ad impressions. Adsmart got there, in part, by growing its business through CMGI's network of investments. Bill thinks that upstarts will be scared away by CMGI's tactics in demanding better for Lycos shareholders. As odd as that sounds to begin with, even if it was the case, don't you think that most upstarts would be wowed by the fact that CMGI helped make Lycos the multibillion-dollar company it remains today?

It won't all be perfect. Bill brings up Chemdex, which isn't as shabby a company as he makes it out to be. It's a revolutionary cost-saver in the life services industry. Still, it was never a big part of the CMGI puzzle. However, CMGI paid just millions for that minority stake that the market now values at $100 million. If this is the weak link, it has to be one awesome necklace.

It is. Try it on Bill. You'll see how well it fits.

Next: The Bear Responds