Europe’s online economy plunged 50% in value during the fourth quarter of last year, according to a new study from PriceWaterhouseCoopers released today.
The research, destined to send a few more shivers down etailers’ spines, valued the top 150 publicly listed online firms at an aggregate market capitalisation of 100 billion euros ($92bn) at the end of 2000. It blamed the slump in value on high marketing spend and a collapse in investor confidence.
“Given some of the high-profile dot-com insolvencies last year, we might have expected some belt-tightening from companies in the sector,” commented PWC’s Kevin Ellis. “Instead, the typical internet company increased spending on marketing and overhead by 11% in the third quarter, bringing the total spend to more than 150% of gross profits.”
Ellis added that continuing high expenditure on marketing was the result of dotcoms trying to line themselves up for a merger or acquisition: “We may also see a flow of new e-business propositions from bricks-and-mortar companies due to the negative market sentiment toward – and lack of funding for – dotcom start-ups.”
All in all, the second half of 2000 was pretty calamitous for the online world. Only 28% of dotcoms were profitable in Q3 (the last period with available financial records), compared to 41% in Q2. In the same period, the average burn rate – the period a company can survive without additional cash – fell from 20 months to eighteen. Moreover, German companies saw their overall value in the sector fall from 45% to 35% between the second and third quarters.
However, the overall figures hide differing trends. For example, business-to-business stocks fell 51%, while business-to-consumer firms saw only a 38% drop in value.
In addition, the best-performing dotcoms nearly tripled their market value over the fourth quarter, whereas those at the bottom end of the scale managed to lose more than three quarters of theirs. “We expect polarisation between the best and the worst performers to continue … leading to further consolidation in the sector,” forecast Ellis.
In a further word of warning, Stephen Adler of Fletcher Advisory, a co-participant in the research, predicted: “We expect to see Internet businesses coming to terms with conventional business realities. The weaker companies are likely to be shown the back door by investors, leaving the market clearer for the well-managed businesses to set themselves up for the long term”
News source: Wall Street Journal