Is The Internet Industry On Fire Or Burned Out?
(10/04/00, 4:44 p.m. ET) By Jill Morneau, TechWeb Finance
Many Internet companies are burning through funds
faster than will keep them afloat, according to a new
report from Pegasus Research.
The Internet researcher studied 339 Internet companies'
research filings, and found that even though revenue
continues to grow, losses remain large. In fact, losses
increased from $1.7 billion in the first quarter to $1.8
billion in the second quarter, according to Pegasus' Burn
Rate Scorecard.
"A Darwinian process separates the winners from the
losers," said Greg Kyle, president of Pegasus Research
International, New York.
Kyle said many companies are trying to cut their budgets
by cutting advertising, but lower-quality companies still
fall behind.
"Companies that are spending heavily and have not seen
improvement in revenues are getting the red flag," he
said. "There is a race to see if [a company] can achieve
profitability before it runs out of cash."
Or, companies try to raise funds in public markets., Kyle
said.
Drkoop.com Inc. (stock: KOOP) saw its sales drop,
from $4.7 million in the first quarter to $2.5 million in the
second quarter, Kyle said. The Austin, Texas, company
recently received a round of funding at the end of
August, expanding its emergency equity financing by
$7.5 million, bringing the total to $27.5 million. The
additional round helped it from shutting its cash-starved
operations just in time.
Last week, Garden.com Inc. (stock: GDEN), cut 30
percent of its full-time workers as part of a cost-cutting
move. It said it expects a first quarter loss of $10 million
to $11 million. WebMD Corp. (stock: HLTH), said it will
cut 1,100 jobs by year's end and take a pre-tax charge of
$35 million to $45 million.
Kozmo.com withdrew its plans for an IPO in
mid-September after cutting 275 workers last week, with
plans to lay off 30 or 40 more.
Pegasus found etailers are the most successful at cutting
costs since they had experience with curbing their too
quick and aggressive growth, Kyle said.
Etailers were hit in the forth quarter of last year and the
first quarter of this year, while B-to-B companies had
less financial issues in that period because they still had
cash remaining from their IPO's, he said. This holiday
season will be important for etailers, as it often accounts
for 60 to 80 percent of their revenue.
Another area in trouble is e-access, which includes ISPs
and broadband companies. E-access companies are
spending aggressively to build out networks and acquire
new customers. They are hoping to scale up rather
quickly, but showed losses of $740 million in the second
quarter, Kyle said.
Overall, e-access companies, such as Prodigy
Communications Corp. (stock: PRGY) and PSINet Inc.
(stock: PSIX), had the biggest financial losses; etailers
ranked second, with losses of $657 million; and B-to-B
companies pulled in third, with losses of $655 million,
Kyle said.
But the worst is not over.
"I don't think the pain is out of that sector as we pull into
the forth quarter," he said. "The market looks seriously at
whether companies have a long-term sustainable
business model, solid revenue growth, and a clear path to
profitability. The ones that don't will disappear through
bankruptcy or acquisition." |
