CMGI seeks to grow again from its roots

There’s a reason investing manias only surface once every half-century or so.

“You have to wait long enough for people to forget,” says investor Roger McNamee, general partner at Silicon Valley’s Integral Capital Partners.

Forget what?

Common sense lessons like, “Trees don’t grow all the way to the sky.”

It seemed that common sense rules no longer applied two years ago.

Classic bubble stocks like CMGI Inc.–“the world’s first Internet operating and development company”–poked holes in the clouds.

Now that Internet stocks have fallen back to earth and companies are flat on their backs, the only view left for investors is a wide-open sky.

CMGI’s attempt to climb back up is being led by a new CEO at its Andover, Mass., headquarters: George McMillan, who keeps two Chicago companies squarely within his line of vision.

One is uBid, an online auctioneer known mainly for selling discounted consumer electronics. The other is Yesmail, which manages online marketing campaigns.

CMGI paid a total of nearly $1 billion in stock for the companies in two separate deals in late 1999 and early 2000– nearly twice the value that investors placed on CMGI Wednesday, when its stock closed at $1.67.

Together with seven other companies–including portal AltaVista–uBid and Yesmail are an important part of what remains of CMGI’s farflung Internet empire after 18 months of cutbacks.

Both Chicago companies likely are keepers for McMillan, who became CEO March 1.

A detail-minded operations exec, he’s promised to stop CMGI’s bleeding no later than January while returning CMGI to its roots in direct marketing.

“I like running companies,” says the 47-year-old, who was recruited to CMGI as chief financial officer last year from his CEO post at Bertelsmann AG’s BMG Direct.

Turning a profit won’t be easy.

Operating losses, excluding one-time and non-cash charges, totaled $68 million for the quarter ended Oct. 31, the most recent period for which numbers are available. Sales totaled $201 million.

McMillan is fashioning a very different company than his predecessor, David Wetherell, who remains chairman.

McMillan is “no dreamer,” says an underling in Chicago.

Wetherell was considered a visionary and an investment genius–the Internet’s answer to Warren Buffett.

Early to recognize the Web’s potential, he transformed a company that marketed books to college professors into a technology firm that bought stakes in start-ups.

When Internet stocks took off in 1997, he embarked on a dealmaking frenzy using CMGI’s inflated stock while promoting the notion of a new-era conglomerate for a golden information age.

CMGI’s stock split five times in four years and kept climbing to around $140 in March 2000, when the company’s total market value topped $40 billion.

The stock’s spectacular performance spawned a short-lived craze in incubator stocks, launching imitators such as Chicago’s Divine Interventures, now Divine Inc.

More Top Picks Best Iphone Cases

Now, it’s up to McMillan to find a way to make money.

UBid and Saleslink–a cash cow that helps companies figure the most efficient way to warehouse and deliver goods–together contribute two-thirds of CMGI’s consolidated sales but only about 12 percent of its operating losses.

Put another way, SalesLink’s fulfillment services and UBid’s low-margin, high-volume retailing business represent CMGI’s biggest operation–and its least troubled.

One of McMillan’s next moves will be to name a CEO at uBid to replace Greg Jones, who quit last year to join Chicago’s Edgewater Funds.

Meanwhile, look for him to begin spelling out CMGI’s longer-term strategy soon. And don’t rule out deals.

“At a point where the business is profitable,” he says, “then we will consider [combining] assets, selling and merging or acquiring them.”

Profits first: It’s a strategy for an era when trees don’t grow to the sky.

———-

Contact [email protected]