Dueling Fools
August 04, 1999

RU4 CMGI?
The Bear Rebuttal

by Bill Barker ([email protected])

Rick argues that CMGI is a stock to love today because if you'd invested $4,000 in it five years ago, you'd be a millionaire. I suppose all those people that own time machines are going to be persuaded by such logic. For those of us who can't go back in time and are stuck deciding whether to be bullish or not on the company based on today's price, Rick's deafening silence as to the proper valuation of CMGI today is quite telling.

Believe me, I share Rick's enthusiasm and appreciation for what CMGI has achieved so far. Who wouldn't? But times change, and though CMGI was certainly one of the few and the proud that were investing in Internet startups right from the beginning -- and has reaped the concurrent rewards for doing so -- the days of slapping down $20 million bucks and getting a billion dollar return over a period of four years or so are over. Example A in this argument is Chemdex, but there are certainly plenty of others.

Rick may get laughs from the South Park/Beavis and Butthead fans with his reference to CMGI being the Internet's "pooper-scooper" for always picking up number two, and at first blush this might seem to be quite a concession from the author donning the bull costume for his argument. But, in reality, saying that CMGI rides the number two horse is quite ambitious. Take the acquisition of AltaVista, something that is really about number eight, and falling.

You see, if CMGI were really interested in being with one of the top two or three players in the portal business, it would never have let go of its controlling interest in Lycos in the first place. But CMGI seems to be much more interested in going with companies that are significantly lower down the food chain than the number two players. While that might seem like a pretty good strategy today -- a time when virtually any Internet IPO, no matter how laughable, seems to set records for opening day moves, ultimately there are going to be a very few winners and a lot of forgotten also-rans.

The tactic of cashing in now on a market crazed for anything at all that can be called an Internet company certainly makes sense as far as CMGI's grabbing the maximum rewards off its investments. However, with at least $6 billion in excess return already priced into CMGI's future IPOs, those who are picking up shares of the company today are taking on the rather enormous risk that the market won't always be so eager to gobble up the second (or eighth) stringers as it is today.

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