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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. "
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!!!
Oh stop your celebrating.. Amazon is not going to "fail" or "collapse". It isn't going anywhere. Supply meets demand, folks. People demand Amazon's services. They enjoy spending just two minutes out of their day to have the latest bestseller, or chart-topping CD, video, DVD, etc. sent to them. Amazon provides a convenient service that a lot, a lot, of people use. They have built on literally 6 (?) years of immense brand name recognition which isn't going anywhere soon. By brand-name recognition I mean not just word of mouth or prior customers, but a colossal advertising campaign that includes superbowls, a virtual saturation of the pre-Christmas airwaves, and a even Time Man of the Year. They have had arguably, just maybe, more exposure and mindshare than any company in the past year. Any company. In the world. Say what you want about brand loyalty disappearing on the net, but when people think of buying books online, they think of Amazon.com. As long as that's true, there will always be a market for them, and they will be in that market. They will change, granted - shareholders probably won't shrug off Bezos' foraging into other areas (toys, auctions) and uncharted territory, resulting in huge losses, like they have in the past. There might be a restructuring of the company. But the company itself will be here for a while. And, sadly, as long as that is true, so will their ridiculous patents ;)
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I think there is a world market for maybe five personal web logs.
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.