Frank Thoughts: CMGI Revisited
Frank Boland
February 08, 2023

If the “name” CMGI isn’t familiar to you, it’s probably because it’s an investment story that’s over half a century old. Yet, its relevance to FAANG and technology stocks today is remarkable. In its time, it was one of the few stocks whose trading symbol was better known than its corporate name of College Marketing Group Inc. Others similar with symbol familiarity were RCA in the 1920s and IBM in the ‘50s.  All three represented technological advancement. But for a business to be known just by its stock symbol was – and still is - illustrative of a stock’s importance … at a given moment in time.

That time for CMGI was from 1994 to 1999, the Internet bubble. In those five-years, the development of the Internet was as important in the advancement of civilization as indoor plumbing had been to ancient Rome. Only this time, it was Cisco Systems providing the intellectual “pipes” which made the exponential growth of information a reality. It meant potential knowledge could be transmitted instantly, and knowledge was CMGI’s business. The company had been founded 26 years earlier for the purpose of providing lists of college courses, and faculty names, to textbook publishers.

With the development of the internet in 1983, a new business opportunity opened for the company. They developed one of the earliest Internet browsers called Booklink Technologies. Lycos, Alta Vista and Google would all become competitors, but that reality gave proof to the axiom that “It’s not the first to develop a new idea, but the best to execute it that succeeds.” There are countless examples, of which Google and Uber are but two. Then, of course, there’s the restaurant industry. But the most salient example is in the technology sector. A business that “eats” its young.

CMGI went public in 1994 pricing over a million shares at $8 and followed that by selling its browser business to America Online for $70 million. With the money, CMGI became a venture capital firm for internet startups, ultimately incubating over 70 companies. The stock was one of the most successful ever experienced. In just five years, it had a market value of $41 billion! FAANG’s recent 10-year outperformance was for a collective return of 1,750%.  CMGI’s outperformance was one stock, not five, and it was in half the time. The stock went up from its offering price 4,921%!

Such a move is never sustainable, but then no parabolic move ever is. Two portfolio truisms were illustrated by the CMGI experience. It is not the number of times one is right, but the magnitude of “rightness” when you are, and one must always have a sell discipline. Warren Buffett’s early investment in GEICO would be an example of the former and CMGI is an example of the latter. By 2000 CMGI had revenues of $898 million and lost $1.4 billion. They always lost money as a public company. Based on revenue, size of the loss and valuation, they would be considered a Unicorn today.

As many investors have discovered in this current bear market, Unicorns are not only not rare but truly are mythological creatures. In 2005, CMGI was sold to Blackbeard Corp. for $180 million cash. A decline of 99% from the previous stock market valuation of $1.4 billion. The stock clearly was a demonstrative example of the need to have a sell discipline. This is not to suggest that all technology companies fail, but they do tend to have short life cycles ... at least as growth companies. As we looked through the 70 plus names CMGI funded, we didn’t recognize any of them. Though in fairness, some could have changed names or were bought out. However, as Mark Twain once poignantly said, “History does not repeat itself, but it does often rhyme.”

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