Netting Web Stocks as Minnows

High Risk, High Reward?

The hottest Internet opportunities come and go before the average investor can get his hands on any shares.

Or so it seems. Big profits are often made when start-up companies go public.

But one Internet stock may give the average investor a way to get in on Web companies during incubation.

It's called CMG Information Services, and it nurtures Internet firms for eventual initial public offerings (IPOs) or for selling to other investors at a big profit.

In some respects, CMG is unusually beguiling.

The Andover, Mass., company hit an early grand slam by buying a majority share of Lycos Inc., which has flourished by featuring a search engine on the World Wide Web.

Also, CMG claims its Web offerings attract more "eyeballs," or visitor attention, than all Internet companies but Microsoft and Yahoo!

And it has won some top-notch institutional backers in the past several months, including Sumitomo, Yahoo!, Fidelity, and two high-tech ultra-heavies, Microsoft and Intel.

"CMG is a very compelling way for an average investor to tie into opportunities in venture capital involving the Internet," says Henry Blodget, Internet analyst at CIBC Oppenheimer in New York.

But CMG also has an ugly side.

Like many of the highly priced Internet companies it backs, it has yet to turn a profit.

The holding company operates at a loss, with only three of its 22 affiliate firms in the black.

The movement of its share price - up 93 percent so far this year - reads like the seismographic record for the Great Tokyo Earthquake. During the past year, the share price has whipped between $11 and $67. (It closed Wednesday at $58.50.)

Even CMG managers acknowledge the difficulty of nailing down the value of a company with so many holdings in such a callow, slippery slice of the hypervolatile high-tech sector.

"A lot of analysts choose not to follow the company because of the difficulty in finding a valuation," says Dave Andonian, president of business development and operations of CMG's Internet group. "It's too much work."

Analysts who bother to size up CMG break it down to its constituent parts, determine a valuation for each, and make a grand tally.

After crunching the numbers and estimating future business, Ullas Naik, an analyst at First Albany Corp., estimates CMG's share price will lift off in the next 18 months to $85.

He says the gain will stem from several IPOs this year:

* SalesLink, a software system that tracks sales and product ordering.

* GeoCities, which enables Web users to gather in a variety of virtual communities.

CMG will likely put three more firms on the block during the first half of next year, Mr. Naik says. "If the IPO market holds up and CMG gets three or four companies to go public, it will prove to be a very, very good company to invest in."

But those are big "ifs."

The reception of IPOs has been erratic for several months.

And a broad market slump - to say nothing of an all-out bear market - could badly maul IPOs.

Still, CMG holds some strong cards.

It controls a vortex of fresh information on Internet markets, demographics, and consumer habits. Its companies gather invaluable data, and its managers each month review 200 business plans in search of investments.

CMG also rallies its firms in mutual support.

"We can leverage across our affiliate companies and get our products and services out to a broader audience," Mr. Andonian says.

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