Investor interest in Internet stocks remains strong as evidenced by the reception to the latest initial public offerings of such stocks as MiningCo.com and iVillage.com.
One way to invest in the Internet without paying the high premium associated with the sector is to buy shares in a holding company or venture capital firm that invests in such companies, often before they go public. CMGI, which has backed such firms as Lycos and GeoCities, is the best example of what investing in the Internet sector can do for shareholder value. In the last year, its share price has soared from under 30 to almost 200.
In the DM News Portfolio, Big Flower, the holding company for various direct mail, digital printing and advertising businesses, is taking a similar approach to the Internet by investing in firms through its newly formed XL Ventures subsidiary.
Through XL, Big Flower owns a minority stake in Web-site network MiningCo. and Web advertiser 24/7 Media — which are publicly traded — as well as e-commerce software provider Andromedia, TV-based Internet service provider Worldgate and Internet communications startup Nutel Corp. The latter three are privately held with Worldgate planning an IPO this month.
Big Flower CEO Edward Reilly said XL Ventures was formed to find companies to support and grow its direct marketing and advertising business on the Internet. Reilly sees Big Flower sharing its direct marketing wisdom with firms whose strong suit is the Internet and cutting-edge technology. Big Flower is making partial investments rather than buying entire companies to spread its investment dollars more broadly across the Internet.
“The investments have been designed to be effective to shareholders and have been done in a space we understand something about,” Reilly said. “I'm sure some people have looked at the company from some of the Internet interests they have found here.”
Since XL Ventures was formed in December, Big Flower stock has risen from under 25 to 32 — as of March 29. While the Internet may be a catalyst to buy the stock, a look at its core operations reveals a stable, growth-oriented company that has benefited from the integration and cross-selling of related businesses.
“Don't underestimate the base business,” said Salomon Smith Barney analyst Janet Del Giudice, who initiated coverage of Big Flower last month with a buy rating. “This is not another CMGI story, there is a lot more substance here.”
As a holder of 1.8 million shares of 24/7 Media and 737,864 shares of MiningCo., Big Flower stock will see some lift if those stocks continue to do well, but the value to shareholders ultimately will result from how those investments augment the company's existing businesses.
Marketing Services Group Inc. has applied for a listing on the Nasdaq National Market. It now trades on the Nasdaq OTC Market and is seeking greater exposure to investors and higher trade volume.
“We are confident that the increased visibility will be an important benefit to our shareholders,” said MSGI chairman/CEO Jeremy Barbera.
Cendant has increased its share repurchase program by $200 million to a total of $1.6 billion while Advo has added 1 million shares to its repurchase program, bringing the current total to 1.4 million shares.
Portfolio Value: If $1,000 had been invested in each of these companies at the beginning of the year — for newly public companies when the stock first closed — the value would be $101,705, an increase of 1.7 percent.