Europe's internet sector halves in value

Despite a series of high-profile dotcom crashes last year and pressure to reign in expenditure, only 28% of internet companies are profitable, a drop of 41% compared to the second quarter of 2000, according to PricewaterhouseCoopers Internet 150 analysis quarterly survey.

PwC’s rolling survey carried out in conjunction with e-business consultants Fletcher Advisory looks at the cash burn rate and share price performance of the leading 150 publicly listed European internet companies.

Findings showed the average burn rate – the time it takes a company before requiring more cash to survive – is 18 months compare to 20 in the second quarter.

Although business-to-consumer stocks fared better in the last quarter falling 38%, compared to 51% for business-to-business stocks, B2C start-ups continue to be more vulnerable to market changes.

On average B2C companies burn out at a rate of 16 months compared to 21 for B2B start-ups.

Kevin Ellis, partner in PwC business recovery services, said: ‘Given some of the high profile dot.com insolvencies last year, we might have expected some belt-tightening from companies in the sector. Instead, the typical internet company increased spending on marketing and overheads by 11% in the third quarter, bringing the total spend to more than 150% of gross profits.’

More prudent financial management has led to increased polarisation between the best and worst performing internet companies in Europe which experts claim has gone someway towards regaining investor confidence in the sector.

‘Profitable dot.coms are exercising greater discrimination over their spend, moving away from expensive advertising to more targeted marketing activity – something the advertising industry may feel the effect of during 2001,’ said Ellis.

A copy of the report, PricewaterhouseCoopers Internet 150, is available at www.pwcglobal.com/brs_internet_150.