CMGI, Inc. (CMGI-NASDAQ) has an important few days ahead itself.  The company is reporting earnings next week (Tuesday June 5, 2007, after the close) and every single investor who has purchased shares any point since January 2005 prior to Wednesday’s close actually appears to be in the money.  If we go back to the bubble years there are painful memories and broken dreams, but since we started giving this one more focused attention back on February 22, 2005 shares up 66%.  Short sellers increased their bets against all of the incubators in May 2007 against CMGI, Internet Capital Group (ICGE-NASDAQ) and Safeguard Scientifics (SFE-NYSE).

The past is the past, and the future is up to the company.  The new and improved ‘operating company’ of CMGI is really a supply chain management outfit called ModusLink, plus it still has its @Ventures incubator arm.  @Ventures’ incubator investments are split between Internet and digital company stakes and alternative energy stakes, and lately it has been focusing on and funding more on the alternative energy sector.  Enough on that.

With the stock up 66% and with this one being up 66% since last earnings and with this re-developing one of the largest cult followings out there, how does one predict an earnings outcome on such a transformed company that is grossly under-followed by analysts?

Since its last earnings report, CMGI has either made or been the beneficiary of almost all good developments: it was given a ‘Buy’ rating by boutique WR Hambrecht (with a $2.50 target, where the stock is now, and out of a $2.47 to $2.97 range suggestion), was given a ‘Buy’ rating from TheStreet.com internal ratings, institutions actually bought shares, it named a new CFO, it has invested more into clean/alternative energy including ‘Earthanol,’ it acquired full ownership of its Japan-based joint venture, brought in a solid CFO from IDC, was named as one of the CNBC Challenge most widely picked stocks almost daily, named a new leader for its alternative and clean power investing, and named a new head of sales and marketing out of Lenovo.

What we know is that when it issued it last earnings CMGI came clean and disclosed that they were losing Hewlett-Packard (HPQ-NYSE) as a client that represented in the vicinity of $100 million annual revenue and $3 million in operating income.  This quarter will still have much of the H-P business in it, but we only really know what the company is targeting for year-end: up to $1.10 Billion in revenues, 12% to 14% gross margin, 7% SG&A, and 5% to 7% operating margins.  While the market was busy tanking after the first mini-tank in Shanghai, this one pulled back briefly after earnings and came roaring back when almost everything else was falling. 

So this quarter is really going to be a mixed bag and very difficult to hang your hat on any one metric.  The WR Hambrecht analyst, assuming nothing has changed, has a $0.02 EPS target on revenues of $259.5 million.  Investors should be strongly cautious on depending upon one or even a couple of targets as this can lead to what may be good hits and bad misses on the surface when in fact the company itself may be taking the exact opposite stance on the same bit of news.  The full-year guidance and "progress with our new team" communique is most likely where the cult following of investors will take its cue from.

It would be easy to predict that with a 66% gain since its last report that ‘profit taking’ would be the most likely excuse.  But it would also be foolish to make such a prediction in a cult stock with such a core small-cap trader following like CMGI.  Whatever the prediction is, it would be difficult to believe that shares just stay static after the earnings on Tuesday.  Based on this coming earnings in a corny analogy, some may think the @Ventures incubator took on one of two new sectors: rockets or parachutes.

If it looks like CMGI went into the rocket business if it beats earnings, then you can probably expect that much more attention will also finally be directed toward the other two key incubators Internet Capital Group (ICGE-NASDAQ) and Safeguard Scientifics (SFE-NYSE).  Neither company has been rekindled in the same manner or to the same degree as CMGI, and you could easily see either company go on a rapid mission that would make them look like a blank-check that found a target plus still retain an incubator group.  We’ll know after next Tuesday.

Jon C. Ogg
May 31, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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