CMGI Incubates Third-Quarter Loss of $1B

With the companies it backs continuing to lose money, Internet incubator CMGI (Nasdaq: CMGI) reported a net loss of almost US$1 billion for the third quarter ended April 30th.

“Substantial progress has been made on refining our business model, but there is still more work to be done,” said chairman and chief executive officer David Wetherell in announcing the results late Tuesday.

Revenue for the quarter totaled $301 million, up 29 percent from a year earlier but 12 percent below the second quarter, CMGI said. Even before depreciation, amortization, restructuring and other charges, the once high-flying holding company lost $131.7 million, or 38 cents per share.

After taking into account all charges, CMGI ended up with a net loss of $963.3 million, or $2.80 per share, against a year-earlier loss of $428 million, or $1.53 per share, and a first-quarter loss of $2.56 billion, or $7.86 per share.

Fall From Glory

Though the results were better than company executives expected, they are a far cry from past quarters. In 1999 and early 2000, CMGI was a major force in the Internet industry, buying up promising dot-coms such as AltaVista and, and forging partnerships with established companies including Compaq (NYSE: CPQ) and Gateway (NYSE: GWY).

As the bottom fell out of the Internet economy and Wall Street emphasized the need for profit potential, however, the value of CMGI’s investments plunged.

In September, CMGI said it would narrow its focus, selling off its less promising subsidiaries and abandoning plans for an international Internet investment fund, in order to cut costs and focus on achieving profitability. The company also began tracking results for its many businesses by grouping them by segment.

Charges Continue

In recent quarters, CMGI has been racking up charges to cover its restructuring and the falling values of its Internet partner companies. AdForce, acquired by CMGI last year for stock valued at $500 million, is winding down its operations and is one of the companies covered by the latest quarter’s writeoffs.

Overall, third-quarter results included $609.5 million in charges for the “impairment of intangible assets,” depreciation and amortization charges of $236.2 million, and restructuring charges of $18.5 million, CMGI said. The writedowns primarily cover investments in three companies acquired last year: AdForce, Tallan and Activate.

Conserving Cash

CMGI said it expects revenue of $280 million to $290 million for the fourth quarter ending July 31st, with an operating loss of $120 million to $130 million.

“We were extremely pleased that we exceeded our consolidated financial expectations for the third quarter, and significantly reduced our operating cash usage,” Wetherell said. “We expect that these trends will continue into fiscal 2002.”

CMGI shares fell Wednesday morning, losing 58 cents to $3.56 in early trading. A year ago, the shares traded at $61.75.

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