Weak Outlook Sends NaviSite Lower

NaviSite, Inc. (Nasdaq: NAVI) fell 13/4 to 3 9/16 Wednesday after the company, an affiliate of CMGI, Inc.(Nasdaq: CMGI) warned of a weak quarter.

Analysts at Robertson Stephens and Adams Harkness downgraded the stockfollowing the announcement, which came even as the company reported results for thefirst quarter ended October 31st that topped estimates.

Andover, Massachusetts-based NaviSite said revenue for the quarter rose 344percent from a year earlier to US$26 million, while the net loss widened to$23.1 million, or 39 cents per share, from $19.5 million, or 34 cents.

“We achieved solid growth amid a more demanding environment, across allcustomer segments, with particularly strong growth in new enterprisecustomers,” said president and chief executive officer Joel Rosen.

The company said it expects revenue of $135 million to $140 million forfiscal 2001, with a loss before taxes, depreciation and amortization of$1.50 to $1.55 per share. The results reflect $20 million to $30 million incapital spending associated with a new data center in London. Expensesassociated with the startup will knock about 10 cents off full-yearearnings, NaviSite said.

Robertson Stephens analyst Richard Juarez lowered the company’s long-terminvestment rating to attractive from buy, citing the company’s “sizabledot-com exposure.” Sixty percent of NaviSite’s customers are in the troubledInternet sector, he said, presenting “a significant and unsettled financialrisk.”

Juarez also lowered his revenue estimate for fiscal 2001 to $135.8 millionfrom $151 million “to reflect the purging of at-risk dot-com contracts.” Henow expects the company to lose $1.52 per share in fiscal 2001, instead of apreviously thought $1.32, because the company is investing in a new Londondata center.

“We continue to believe in NaviSite’s potential as an acquisition candidate,and the need for managed hosting and outsourced services,” Juarez wrote in aresearch note. “We are taking a less aggressive posture on the stock giventhe dot-com risk and the risk of the overall slowdown in economic activity.”

NaviSite, which provides Web hosting and application services for companiesthat conduct business over the Internet, received a boostearlier this month when CMGI said it would accelerate a planned $80 millionfinancing arrangement for the company. “The business metrics for NaviSitecontinue to exceed expectations,” said CMGI chairman David Wetherell,”particularly as NaviSite increases its focus on large and middle-marketenterprise customers.”

Over the past year, NaviSite shares have traded as high as 164 15/16 and as low as 3 3/8. The stock has come under pressure because of analyst downgrades and a weak Internet sector, as well as CMGI’s announcement that it plans to cut some of its dot-com investments — though the company has said NaviSite is not one of the properties on the auction block.