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Net Firms Running Out Of Cash?
mmccune writes, "Barrons is running an article about how many Internet based companies are about ready to run out of cash and are having trouble raising new cash. Their list includes many well know companies such as CDNow, Secure Computing, drkoop.com, Medscape, Infonautics, Intraware and Peapod.
Read more about it on
ZDNet. "
Some major bankruptcies would be a great thing for business on the 'net. It would force companies to operate like legitimate businesses. In turn, this would bring a whole lot of badly needed credibility to the e-commerce business models.
Speaking of losing money, remember the Microstrategy CEO - Michael Saylor - who pledged $100 Million to start an online university? Well, his company stated on Monday that it would "restate its earnings." (In financial talk, this means: we goofed up in our accounting, here's the real figures.)
This is a BAD THING for the company. It was SO BAD that the stock price dropped $140 in one day and Michael Saylor himself lost $6 Billion. Imagine losing about 2/3 of your wealth in a single day. Don't worry though, he's still worth a healthy $3 Billion.
And here I am worried about the thousand dollars I'm down for the year...
You should never take life too seriously - You'll never get out of it alive.
With fewer startups nipping at their heels, the leaders like Amazon will reduce spending on promotion, and they'll start to show profits.
Why and how? All amazon tv advertisement will do is bringing more customers into ordering through the Internet. Customers eventually will discover search engines, and everyone who can undersell Amazon, will do that with no money spent on advertisement thanks to hordes of users that Amazon brought and improving search engines that will be able to look for products without any human assistace at the server. Old aging search engines will change into over-commercialized "directories" and "portals", but new ones will appear fast enough to keep enough unbiased information available.
Then the number of people outside US that are using that mechanism will increase enough to make reliance on "dumb consumer" even less profitable, and system will reach some balance, with no place for "leaders" like Amazon.
OTOH, ebay-like auctions will survive -- search engines can't be fast enough and their users aren't easy to find, so auction sites will remain attractive, however even in that area single leader won't be able to survive.
Contrary to the popular belief, there indeed is no God.
The company that sells 10*N books still has an avantage over the company that sells N books.
In the case of books I have meant publishers themselves. They can organize their internet-assisted mail-order much easier than Amazon -- if cost of distribution is driven into the ground, why waste money on middleman like Amazon?
Companies spend money on advertising, not just to spend money, but to gain more customers and thereby gain the advantage of scale.
When company can't distingush itself in the eyes of consumers, no advertising will help. Look at Pepsi vs. Coke -- even though their ad campaigns probably somehow increase the consumption of their caronated beverages, pepsi and coke ads don't "pull" consumer to either side, in the best for Pepsi and Coke case ad can make him more thirsty, but he will still buy either of beverages with approximately the same probability regardless of whose ad he had just seen.
Contrary to the popular belief, there indeed is no God.
If Coke and Pepsi advertising are so ineffective, then why do both of them sell so much better than RC and Shasta?
Because they are a duopoly -- they both benefit from positive-feedback nature of the distribution system, and tolerate each other's existence because it shields them from antitrust laws. Since now they mirror each other's actions, they behave as virtually one company. "Hostility" between them is maintained without a goal of "victory" but just to keep an illusion of competition.
In this environment ads that benefit both companies are still accomplish their goal, they simply share both the effort and benefits.
Contrary to the popular belief, there indeed is no God.
Many small sites, including my wife's, are turning a profit, albeit a small one.
If these huge sites fail to ever become profitable, and if VC starts to dry up, it won't kill the net; it will just restore some balance again.
Personally, I've heard too many lame ultra-commercial "concept" site TV/radio ads. A respite from those would be more than welcome.
New XFMail home page
/bin/tcsh: Try it; you'll like it.
Buisness is about making money, and many of these 'Net' companies need to start to get it. You cannot simply say that you'll be profitable in 'a few years'. 1 out of 10 venture capital companies actually makes money. I forsee the same happening with the .com's of the world.
.com's to be successfull, they need to make money. Alot of money. In many cases, they just don't have any time left to do it..
Amazon, one of the biggest online retailers, hasn't even made one lousy dime yet. It'll be *great* if they do eventually, but at what cost? If I sink $100 in something every year, and after ten years, I make 1$ profit on it, where have I made any money? Ok, the year after that, it makes $100. After that, $200. then $400, then $500. Ok, that's great, but it took 15 Years to do. Granted, I'm blowing it a tad out of proportion, but in order for these
-- I'm the root of all that's evil, but you can call me cookie..
At least in the case of Secure Computing, I'm not suprised in the least that they can't get funding. They are a local company located a few miles from my home. I considered working for them, so I studied them in depth, reading their 10K reports and talking to people who worked there.
The impression I got was that they are like so many tech companies in this boom. That is, they weren't growing fast enough. So they tried every fad around. Then they moved their headquarters to San Jose, despite the fact that they still remain largely a Minnesota based company. They moved most of their effort out of building UNIX firewalls into porting to NT. Now everybody wants UNIX--oops. And of course they acquired other companies only marginally related to what they do, things like filtering software. Only to find that they were a poor fit and quickly worth less than what they paid for them.
The shame of it all is that they grew in the first place because they made good firewalling software for UNIX, mostly Sun. Now they're back to where they started, poorer and out of cash, suddenly without all the good engineers that made them a good company in the first place.
That just what I'm saying won't happen. Wall Street is not dictating their fate here. They sold 600 million dollars of stuff last year. The only reason they didn't break even was because they spent even more than that building for the future - spending on advertising, building brand awareness, implementing new features. If they would just all that right now, they would be a profitable company. It's not an attractive option, but it's doable. Bezos and his cronies are smart enough to head something like a collapse of the company off at the pass. I don't think they would let it get to the point where their stock will be selling for pennies a share and they face a possible buyout before they become a lot more interested in pacifying their backers.
--
I think there is a world market for maybe five personal web logs.
It's 'dyed'. I'm still alive, and I wish I could tell you differently, but I'm not a shareholder.
/your/ fatal flaw: making the assumption that shopping for a washing machine and shopping for books are the same thing. They are not. People, even me, love to go to the store to try out what they buy. I used to do this with computers before I knew enough, and I still do it with clothing, appliances, etc. Those are the things people want to "touch and feel" or catalog shop. It's just not in our nature to make large purchases sight unseen.
And here's
None of that is true for books. I have never catalog shopped for books, and neither have you. Don't try to claim to the contrary. Shopping for books does not fall under the same paradigm as "traditional retailing." Tourists don't go book shopping. Either you've never traveled or you have never seen tourists, but the only time they buy a book is to pass the time in transit. Tourists shop for amusing things - necklaces, postcards, whatever. People like to shop, and they always will, but not for stacks of paper.
Books are cheap enough that no one really minds One-Clicking a few, because if they are great or if they suck, you're still only out ten bucks. I couldn't say the same for a microwave or dress, where you have to try it one or check out all the features. Furthermore, Amazon.com provides a very convenient service in customer reviews and sales rankings for every product. "Still not sure about whether you should buy this book? Here, look at what other people had to say. Look at how many people are buying this book." Some people like to spend time in bookstores. I love it. But a lot don't. They are busy, and they heard about this cool new sci-fi novel or biography, and they just want to log on for two minutes, click the mouse a few times, forget about it, and be pleasantly surprised when the book is waiting at their doorstep a few days later. Amazon, with One-Click, has made this about as easy as it can be, and that's why people paid them over half a billion dollars last year.
--
I think there is a world market for maybe five personal web logs.
right now. Their losses have (allegedly) come from their expansion into other businesses.
I wonder if this wasn't a mistake. amazon.com electronics is not that compelling a creation, since I can get identical if not lower pricing from bricks and mortar stores.
D
----
I thought that the original purpose of the stock market was to allow companies to raise capital for expansion by selling stock to the public. Sometimes it seems more like a legalized form of gambling with little relevance to reality.
Mea navis aericumbens anguillis abundat
Deserves to be able to raise money?
Why should anyone invest a nickel in Medscape if they don't have a realistic plan for making money and providing their shareholders with an attractive return on investment.
Mea navis aericumbens anguillis abundat
Bah humbug. I'm not going to say that there wasn't, nor isn't, significant stodginess amongst the wall street community. However, not every criticism of the so-called "new economy" is irrational or self-serving.
Ok, first point: The VC don't care about the ultimate sucess of these companies, atleast not in the short run. So long as the VCs can get in, and quadruple their money after the IPO in only a few short months, they're happy. The VCs, of course, depend on a highly receptive and irrational market, whether or not they recognize it.
Second point: Your example would only allow for the VC firm to break even--hardly a worthwhile investment. 10 companies by 10 million dollars equals 100m, if only one company suceeds and returns 100m, that's 100m in and 100m out. In other words, they've only broken even. Which, in a time-value of money point of view (not to mention inflation), is actually a loss. Because that 100 million dollars could have been invested in almost anything else, and returned significant profits.
Third point: The math doesn't work out like this in reality. As it stands right now in publically traded firms, almost every single DotCom IPO has been a winner. To criticize this is hardly irrational. The aggregate of the market capitalizations of all these Dot-Coms is impossibly high. They either would all have to grow at an impossibly high rate, or you accept something like your previously mentioned scenario, where one in ten does well enough to make up for the losses in the failures--the growth rate and/or profitability required for that is virtually impossible.
Amazon is overvalued. That is a problem for anyone who is invested in them. Once the market understands that they can't grow at anywhere near the rate implicitly (though not necessarily conciously) anticipated, their stock is going to fall hard. Furthermore, Amazon, like many of these DotComs, implicitly depends on the market being there for them when they need more cash. The drier the market becomes for them, the harder they're going to find it to raise capital, the more they dillute their stock, the poorer they perform (as a stock), the drier the market becomes, and so on. I predict these DotComs are going to go the way of the BioTech stocks of late eighties and early nineties, from redhot to untouchable in 0 seconds.
I would also remind you that what Amazon "could" do is irrelevant, what they do do is the only important question. If Amazon is overconfident of the market, and treats their cashflows accordingly, they may find themselves at a point of no return if the market dynamics change significantly.
At this point, Amazon is damned if they do, and damned if they don't. They can't possibly meet market expectations, and their stock has to come down no matter what management does. Amazon can either try to fulfill those growth prophesies (which they'll never meet anyways, and depending on the market to back them up when they need cash again), or they can cut their losses and try to attain profitability, at the expense of future growth. Either way, their stock is going to fall.
The bottom line: Amazon might succeed as a company, but that does not mean it is sane to invest in them at this point!
Yes, Amazon is clearly another one of the white man's lies!
I certainly don't think the bursting of the "internet bubble" will hurt either directly (e.g., not in sales). However, the PE ratios of many of these non-Dotcoms are extremely high. For example, Cisco was almost 200 last time I checked! Granted, they have significant growth opportunies and they're well run. Nonetheless, at 200 it's very questionable. I wouldn't be too suprised, if, when the dotcoms start turning bellyup, the market also "re-examines" the valuation of non dotcoms as well. Cisco might very well recieve extra-scrutiny, because of guilt by assocation.
Look at Pepsi vs. Coke -- even though their ad campaigns probably somehow increase the consumption of their caronated beverages, pepsi and coke ads don't "pull" consumer to either side
Dumbass. Being pure of mind and heart, you drink only what quenches your thirst best for the least amount of money. Marketing and advertising doesn't work on you. And it doesn't work on the people who decide what drinks go on the shelves of grocery stores and Quick-E-Marts. And it doesn't work on the people who decide what brand of drink goes with the supersize combo you just ordered.
Coke has one of the finest brands on the planet. The best thing for them to do would be just save their money by not re-investing into that brand. Marketing doesn't work. At least not on those who are pure of mind and heart.
the worst impact of this bubble burst will be felt by such companies as Intel and CISCO who provide products and services to dot coms
Don't forget that when these .coms go belly up, poor, little Intel will really get it in the nads. If only they had some other source of revenue, like the rest of corporate America, plus all of the American consumers above the poverty line, plus all of small business in America, plus these same markets all over the fucking planet, plus the case cash reserves to buy and sell the moons of Mars... wait, they do.
Try to think before you type.
There was an article in a recent Newsweek explaining that Amazon is one of the few net firms that's actually trying to borrow money instead of just selling stock. As a result, they're the only net firm with a credit rating, one which puts them slightly below "Ha! You want us to lend you money?!". The thing is, they think they won't have to pay back their bonds because they're convertible into stock (all except their earliest bonds). They expect their stock price to continue to rise, and then these people will convert the bonds, and they won't have to pay them back! Somehow I doubt their stock price will continue to climb as much as it has, and they will find themselves facing a great deal of debt.
NB: I know very little about financial markets, particularly corporate bonds, and I'm just parrotting a Newsweek article. Correct anything!
Apple never sold their product as a loss leader to gain marketshare.
Just the opposite. In the mid to late 80's, their profit margin on hardware was at least 40%, and each year that the pundits predicted Apple would go under, they made more and more money! Over the complete history of Apple, there have only been a handful of quarters where they had a loss.
What I think is more interesting: during Apple's hey day in the 80's, their stock never went above ~50. Now it's between 115 and 130!
So much for believing "the experts" and pundits like John C. Dvorak.
As for Amazon, here's there strategy in a nutshell:Q "But we lose money on every sale! How are we going to make a profit?
A: "Volume!"
Q: "But with more volume comes more loss!"
(beat)
"I'm fired, aren't I?"
Pope
It doesn't mean much now, it's built for the future.
No, RMS is far out on the lunatic fringe for trying to force his silly idea of ethics on everyone else in the world.
DrLunch.com The site that tells you what's for lunch!
Back to basics, hey? You mean the way it used to be embarassing to have a ".com" in your email address?
Bingo. Amazon has done a lot of things the right way. I have ordered a dozen or so books from them and they have been at my doorstep in 3-4 days each time. Heck, I'll spend a couple bucks if I have to and get it from them because of their service. The true winners of the Inernet E-commerce businesses will win on one thing: SERVICE SERVICE SERVICE SERVICE SERVICE SERVICE.
That's not to say that price isn't important, but service is going to be more important, IMHO.
On that note I read yesterday that Amazon signed a deal with the folks at Kozmo that will allow them to deliver books in an hour in areas where Kozmo is doing business. I would say that they have a real good clue and are moving in the right direction.
This article is truly shoddy reporting. It was based entirely on the cash situation of these companies as of 12/31/99. While there definitely are some companies on the list in desperate cash flow scenarios, many of them have raised additional capital since the beginning of the year.
Barron's is not a well-respected source of financial analysis, and many of the major analysts have criticized the article.
Coke's not much better, of course. Give me a good beer anyday (not Budmilloors, but a good homebrew or microbrew).
However, advertising does work. I do not think that Amazon needs ot be advertising anymore, though. Who has not heard of Amazon that could use it? No-one that I know of. My grandmother has heard of Amazon. They should save the money and try to turn a profit.
Of course, if it is true that their marketing costs include shipping charges (I thought the bill included shipping...), and if the associate program is part of marketing, then it might not be so easy a) to cut costs b) to turn a profit. That is for Bexos to attempt. I don't own stock or buy from Amazon (B&N is usually a few pence cheaper), so it doesn't really affect me.
Heck, the pundits have been saying Apple will die for the last ten years, and all it's done is make them more profitable. Maybe this is exactly the sort of fool-the-evil-eye promoting that Amazon needs to make it big.
"If one is really a superior person, the fact is likely to leak out without too much assistance" -- John Andrew Holmes
Still don't think the ads are effective? Try standing outside a WalMart on a sunday afternoon, and watch the soda machines carefully. The Coke machine will still get business even though the Sam's Choice machine right next to it is priced 20 cents lower. That's what advertising does for you.
-rpl
Oh stop your celebrating.. Amazon is not going to "fail" or "collapse".
You're right, but whether the company will survive as an independent company with their precious independent stock symbol is another story. If Wall Street ever gets tired of their oceans of red ink, AMZN will probably be acquired at pennies on the dollar--by Walmart, perhaps? Walmart.com--with "books by Amazon." How's that for establishing a presence on the internet?
Does this mean we can stop hearing about e-this and e-that all the time? And with this put an end to the Windows 2000 commercials about this great (:P) OS for "the Business Internet" We can only hope...
Chris Hagar
"The price of freedom is eternal vigilance." - Thomas Jefferson
Ponzi was a certifiable intellect in comparison to some of the outlandish stuff perpetrated in the name of 'internet-business'.. Postal coupons, a couple of plausible lies, and some investors walked away happy. 'E-Commerce' was a implausible corporate lie based on the lies of it's vendors, further embellished by the lies of the users, and I'm afraid none are going to walk away happy. Except those of us that always believed that 'Eanything' was pure bullshit. Perhaps when all the 'dot-coms' fail, the Internet will return to being a communication medium instead of something that should be 'owned', that requires a 'presence', thqat required a new marteting 'buzzspeak' every week when someone furthered the dot-com game of spam, or invaded the privacy of the global community of users to 'direct-market' them.
Fuck you all. You had a chance to play with our toy, and now that you're out of cash you've got to give it back and go home crying to your investors. Good riddance too..
.sig: Now legally binding!
As I recall from a speech Vint Cerf gave at my company, he said that during the California Gold Rush, the folks who got rich were not so much the miners (though a few struck it rich) but those who sold mining supplies -- pick axes, mules, etc.
Even after the prospectors were gone, the folks who sold supplies did just fine when the other settlers came.
Intel and Cisco sell mules -- I think they'll be just fine.
Amazon's on the list! WooHoo!
On another note, businesses fail all the time. It just happened that net businesses usually did very well. Now they are starting to collapse just like brick and motar counterparts.
The company that sells 10*N books still has an avantage over the company that sells N books.
Companies spend money on advertising, not just to spend money, but to gain more customers and thereby gain the advantage of scale.
One of these days, you won't be able to raise cash simply by adding an e to your name. That day will be the day when the small dotcoms perish and the big ones grow even bigger.
All opinions are my own - until criticized
If a trusted source says "Stocks are overrated" the stocks fall. If a trusted source says "the dollar is insecure" the dollar falls. And if a trusted source says "The internet boom is over" then it is over.
Some dotcoms will survive, some will be eaten by those who do. I personally think that Amazon will be among the survivors if they play their cards right. "Books worldwide by web order" actually is a sound business idea. Once the boom is over they can cut down on advertising (since they already have a brand name) and live on sales rather than stock.
All opinions are my own - until criticized
The publishers logistics are built for large scale deliveries to middlemen, not for consumer delivery. As long as there are physical products from different sources involved, there is a place for middlemen. Principles about patents aside, Amazon actually offers something more than a mere search engine. A search engine will only show me what I ask for, not related items. (unless someone builds a "meta-amazon" SE)
When company can't distingush itself in the eyes of consumers, no advertising will help
I repeat: The ads are there because they *work* Even the most brain dead diaper commercial is actually carefully manufactured to pay off.
Pepsi and Coke monitor the effects of their advertising closely. Believe me: *They* *actually* *work*
Of course Amazon might die. There is no telling which dotcom will make it and which won't. The internet boom has given them a chance to expand faster than otherwise possible, but that just affects the time scale, not the principle. In the end, good business models survive and bad ones disappear.
All opinions are my own - until criticized
Wake up and smell the coffee, Forge --
Our contacts in the Kremlin said the UGN-3676 code was supposed to be discontinued following Glastnost! You should be using the RZW-7751 cointerintelligence standard for transmitting secrets outside the U.S. base of operations!
Waitaminute, the other contributors to this site are probably reading this message as well! Abort mission! Abort! Abort!
Keep up the great work, I really enjoy your posts.
Finally, all the investor hype over the ".com" stocks has worn off. Now internet related companies will have to actually show that they can make money in order to succeed. Imagine that ;-)
For those wondering "how could it be?", here's a simple rule of Real Economics:
Equity DOES NOT necessarily mean capital!
Equity is what you use to buy other companies and raise cash from investors. Capital is what you use to pay the bills, ship the goods, and do all the mundane things like that (pay your employees, for instance). As long as these dot coms are all losing money, they will be dealing with dwindling supplies of capital. If the market is no longer interested in the company's future, there will be nobody to exchange equity for capital. Your stock can be worth a fortune on the Street, but if people won't buy the stocks or securities you issue, you'll run out of capital. Period.
The other side of this is that equity in the dot com world is like a shark. If it stops moving, it dies. Companies need to keep making aquisitions and keep selling equity to expand in order to maintain investor interest. So far, there hasn't been a whole lot of interest in profits, but that will invariably change - and probably soon. Companies that are low on cash don't necessarily have to make money today, but soon - real soon. Because otherwise the dogs'll stop eating the dogfood, and that's what these companies will become. Don't use Amazon as an example - it's not so much that they are trying to become a huge Net company, the're tring to become a huge compoany, period. That creates a somewhat different mentality.
Peapod will probably be the first of these companies to go down. Their strategy was for many years to use a proprietary Windows & modem-based system to place orders that would be fulfilled by local partner grocery stores (Stop & Shop here in Boston) using Peapod vans and employees. They finally went to the Net, but all the supermarkets are moving off on their own and leaving Peapod behind. They had just planned a debt offering that was abruptly cancelled last week when their CEO quit, and now they only have a couple of monts' worth of working capital, despite their stock value. They're toast. Someone will buy them for pennies on the dollar, and then only for what's left of the brand name.
That particular case is a little bit near and dear to my heart, since I used to work for an ad agency that did supermarket flyers. And we thought about going on the Net with our customers about four-plus years ago, when Peapod was still using modems and no other web businesses were on the drawing board. This was in the days when people still believed that an immediate profit was needed to prove value. So we wimped out. As it turns out, we could have started it, lost money, sold it, and been dot com millionaires by now. Bitter? Me? Naaahhhh....
- -Josh Turiel
-- Josh Turiel
"2. Do not eat iPod Shuffle."
When the money runs out, there will be a huge shakeout. Pure content plays are going to really get slammed, along with anything else that relies on ad revenue. What will we learn from this? Perhaps that it is better to start small, building out your business as you gain customers, than to burn huge amounts of money on marketing, hardware, and what amounts to buying customers. IOW, that the good old-fashioned way was better.
-jwb
Whether or not the Barron's article holds water is moot, the fact that people are starting to tread carefully around the "netconomy" is so rad. Everyone will fall victim to cash flow at some time, despite what everyone thinks about e-commerce. A majority of the new internet based companies are service providers, a service business is VERY EXPENSIVE. Manpower is expensive especially when a company needs oodles of noodles of programmers to maintain their site. What I bet you'll see is all the damn nitche market companies start to die off, ones that need 10 million a year to operate but don't make nearly enough to keep running. It used to be an IPO was to get EXTRA cash to cover expensions, aquisitions, mergers, ect. not a quick and easy way to get some attention and make the CEOs billionaires overnight. If you take a step back all these net companies start to look like well funded get-rich-quick schemes. Build a website, get alot of people to check it out at least once, then overevaluate it's stock price. The investors sell out with their chunk of the cash and buy Ferraris and 5 bedroom houses in San Jose. If you want a successful internet company watch television for a day, the stuff that makes money on television will make money on the internet being related media types. Entertainment, edutainment, and product sales. E-companies also forget an important thing, money. You need to CHARGE for your services rather than give them away for free. Advertisement revenue does not make nearly as much money as charging for services. People need to visit your site for the ads to work. If a million people visit in a single day you make alot of money, if after the first day only ten people come to the site you're screwed.
You want to know a good way to charge for services? SUBSCRIPTIONS! Magazines and newspapers have been doing this for centuries! With subscriptions all you need is that first million page hits. AOL makes their billions in part to subscriptions, the subscriptions don't make the company money, they save them money. Every person on AOL subscribes to view advertising and product promotion, AOL's cash cow. Their internet connection (cost distributed among millions of users) only costs AOL 15$ at most, then on top of that AOL gets another 6.50$ that covers regulatory and rental fees. But for every 21.50$ that a user costs AOL they make them 1,000$ from advertising, affiliates, promotions and the like.
If you want to start a company on the internet ask yourself what you can provide to people, then ask how much it's worth to them, give them a discount, charge them for services, use them to make you money, and lastly, niches are for weenies.
I'm a loner Dottie, a Rebel.
I can't wait for the day when companies get interested in profits again, as opposed to the current stock price. Used to be businesses sold products. Now they just sell themselves. Sounds too much like prostitution for my tastes.
A Government Is a Body of People, Usually Notably Ungoverned
According to this article, the methodology applied in calculating these companies that are going to go broke is flawed for "wholesale application". In summary,
Barron's calculates the "months until cash burn-out" by extrapolating Q499 losses aganist Q499 cash position. This is flawed because of three main reasons:
I haven't read the article, so I can't really effectively offer my own opinions. But suffice it to say that I'm not worried about my stocks. Ever since I heard an analyst on CNBC say that IP is "the technology that allows you to click on a link and retrieve a web page" and then attribute that to a company's profitability and business model, I haven't put much faith in "professionals" and their prediction of technological companies.
J.J.
>> If Amazon could run a self-sustaining and profitable long-term business by dropping its marketing and infrastructure expenditures today, then it should
Ah, but you specify long-term. I just said they could turn a profit this year if they slashed their promotion budget. But they know that if they don't keep growing, somebody will grow bigger, and they'll cease to be profitable. There are a going to be a few big survivors in each category, the rest will be also-rans or mom-and-pop operations. Think of how much Coke and Pepsi sell, compared to how much all the other colas sell. The 'net will probably allow for more survivors in each category, but there will still be a big payoff for being one of them.
Not Peapod! Why, if we didn't have Peapod, then where would we get our groceries online? Oh, wait a second, we still have Webvan, Streamline, and countless other local companies. So there'll be a lot of shakeout among the various online companies, and the less successful ones will die or be bought out buy the more successful ones, but that's the market cycle as it's always been.
Even Ponzi's ventures eventually ran out of money and collapsed. This internet bubble is no different.
"If one is really a superior person, the fact is likely to leak out without too much assistance" -- John Andrew Holmes
I think that anyone who didn't realize that the bottom was going to fall out of the tech stock economic boom is a fool. The only question now is whether they can level off their business or if they are going to crash and burn.
I particularly liked the absurd sites that I have seen advertised such as snowball.com which are spending on tv advertising even, but they literally have no product to sell.
I frankly don't need to look at a million and one websites a day where I get some news and a bunch of random people post their opinions. Oh wait a minute...
Seriously though, I hope Amazon.com and CDNOW.com both do bottom out and end up giving me some really good deals. There's nothing like taking advantage of someone's misfortune.
Investment fads come and go. Biotech had a similar boom in around 1990-1993 and then the bottom fell out of the market when the internet came along. Guess what, venture cap has started to subside for web site companies after people realized that clickthroughs give very little sales and that some of these companies are sooooooooo overvalued that even if their wildest predictions of future growth came true, investors would loose.
Has anyone noticed that the biotech sector has enjoyed a huge boom in the last few months? Could that be due to the beginning of a dot.com bailout?
I bet you Warren Buffett and Alan Greenspan are still considered financial wizards in 15 years.
I'm not saying that all dot.com's are doomed, just most of them.
no sig.
Hotjobs.com, one of the companies that spent a chunk of change on superbowl ads also is broke. What they decided to do about this is venture into the brick-and-mortar and have real live career fairs in major US cities for employeers who want to place facies to these online resumes. Hotjobs claims that these career fairs bring it in quick cash infusions of over $100,000 and help with the lost superbowl cash. It seems that lots of dot comms may have to rethink their internet only strategy or vary their business model if they do not plan to crash and burn.
Mark my words, the Ponzi scheme (named after Charles Ponzi, a swindler in the 20s who robbed from Peter to give to Paul - ie one investor to another - slightly different from a pyramid scam in that it isn't necessarily hierarchical) will be renamed the Amazon scheme soon enough.
My only fear is that this eventual return to market sanity will precipitate a major crash. Most other industries are reasonably valued, having suffered from a hidden bear market as all the money has gone into tech. But a mass rush from tech may not necessarily go back into value companies (ie those with profits).
Keep your eyes open folks, and hope that your online broker's servers are up for the stampede, when (not if) it comes.
GdI
The bottom line is that there are some fundamental rules by which companies can be evaluated, the bottom line, the revenu, the growth rate, ability to pay all the outstanding bills at the end of the year, etc. Some dot coms just don't show most of those qualities and investors are tired waiting.
BTW did Amazon come up with some 10 years plan for revenues? That's what Fred say, the Amazon is saying that in 10 years they will be profitable, and this is in the time when billions of dollars appear and disappear over night!
Did you know that dot coms constitute over 8% of all business trades on the Wall street? That's over 1.1 trillion USD. Huge bubble!
You can't handle the truth.
This market is no different, and its a healthy process.
As it stands, AOL and Yahoo are flush with cash, hence they stand poised to be the consolidators, not the consolidatees.
This doesn't mean that the internet shopping revolution is stopping, far from it, it just means it is going to enter into a new and more mature phase. We are going to see the thinning out of the millions and millions of net companies until only the ones that actually provide valuable services and turn a profit remain. Personally, I'm looking forward to it.
OOG NOT SURPRISED!!! ECOMMERCE HYPE, AS ARTICLE SHOW!!! OOG SEE BEHIND FLASHY ADVERTISING AND PROPAGANDA!!! COMPANIES RIDING ON ECOMMERCE WAVE, HAVE NOTHING TO BACK UP INVESTMENT!!! OOG PREDICT FULL INTERNET SHOPPING AGE NEVER HAPPEN!!! INFLATION AND GOOD ECONOMY MAKE IT LOOK POSSIBLE, BUT OOG SEE BAD SURPRISE IN FOR COMPANIES!!! FOR EXAMPLE, AMAZON IN RED DESPITE CLAIMING LARGE PROFITS AND EARNINGS!!! OOG LAUGH WHEN ONLINE SHOPPING COMPANY FAIL!!! OOG BREAK HEAD!!!
However, Pegasus seems to have overlooked some fairly important issues. Chiefly, investments. Most companies avoid keeping massive amounts of cash on hand simply because it's much better off invested in the stock market. See, for example, VerticalNet 's response. When investments are taken into account, at least some of the companies are much better off than the study suggests.
This is another example of non-news, of an old blue-blooded publication pooh-poohing the high-growth economy of the Internet.
Net firms are DESIGNED to run out of money. Here's the way it works. VC's give ten companies ten million dollars each. They companies spend it as fast as they can, provided they get some results for it, and it's off to the races. Of course, startups pace their spending, but if they give themselves a year's cushion of cash, development will suffer and they'll fall behind. Of the ten companies, maybe one will reach maturity before it runs out of money, will go public, and will pay off the investors way better than 10-1.
Amazon could be making a profit today if they wanted to, but they're still spending enourmous amounts on promotion. Folks keep sayting that some sort of bubble is going to burst, but that's not quite accurate. Growth WILL slow down one of these days, though, once we reach a certain point of saturation. When that day comes, many companies will see their stock drop through the floor, and they'll be acquired for pennies by the big fish. With fewer startups nipping at their heels, the leaders like Amazon will reduce spending on promotion, and they'll start to show profits.
Net companies are losing money. So what else is new?
The article claims that Amazon is going to run out of money in 21 months. IFF they don't raise more capital before then. Has amazon *ever* been more than 21 months away from bankruptcy? This is the company which used the 'net 60 days' payment scheme to provide almost all of its working capital for a significant part of its lifetime. I'm certain that it was closer than 21 months away from insolvancy back then.
Yes, if all the funding dried up immediately those companies might be in trouble. But the funding isn't going to suddenly dry up, and even if it did, those companies would easily have enough time to change their business practices (ie, raise prices) so that they could stay afloat.
Tarsnap: Online backups for the truly paranoid
VA Linux has about $130 million in cash less liabilities, and they're losing money at an annual rate of about $46 million. (This is computed as 4x the most recent quarterly figure.) So they're in good shape in the cash department, and have two or three years to become profitable. Yes, the stock is tanking, but they have the money in the bank. This gives them some staying power.
Red Hat is in good shape, too. They have around $88 million in cash less liabilities, and they're losing money at around $14 million a year. So they have a few years if they don't overexpand. Red Hat is trying to do a second-round public offering to raise more money, presumably so they can overexpand. When they filed with the SEC for that offering in January, their stock was at 131; now it's around 59. That's an bad situation in which to try another offering, but they don't need immediate cash to operate.
So neither of those companies is going to go away quickly. They're in businesses that don't really take heavy capital investment, after all. On the other hand, as stocks, both are incredibly overpriced, as the market is recognizing.