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dotcom survivors out of the red

  1. Dotcom survivors out of the red
    By Paul Taylor in New York
    Published: March 23 2003 21:53 | Last Updated: March 23 2003 21:53

    They may yet be named "the dotcomeback kids". Out of the rubble of the dotcom crash, a small group of profitable companies has emerged with viable business plans and more realistic expectations.

    These internet survivors range from big quoted companies such as eBay to small private concerns. Of course, the corporate landscape is also littered with dotcom failures including Webvan, [email protected], the Industry Standard and Boo.com.

    In the US alone it is estimated that 500,000 jobs were lost in the dotcom, technology and telecommunications meltdown. Some start-ups are still haemorrhaging cash and may well disappear. Others are likely to be acquired at fire-sale prices.

    Survivors confounding the sceptics are likely to include Yahoo!, the leading internet portal, and Expedia, the online travel agency that this week has been the target of a $3.3bn bid by Barry Diller's USA Interactive for the shares USAI does not already own.

    Google, the privately held search engine business, is also profitable. Even Amazon.com managed to report a profit in the fourth quarter of last year, its second successive profitable Christmas quarter. It is expected to report a net profit of $23m this year provided it can fend off more traditional US retail rivals such as Best Buy and Sears, Roebuck.

    Often the dotcom survivors beat the odds by reinventing themselves. They cut costs, restructure their operations and focus exclusively on profitable opportunities. One of the most remarkable turnrounds has been engineered by Terry Semel, Yahoo's chief executive, who took over in May 2001, a year after the dotcom bubble burst.

    Since then he has restructured the business to become less dependent on internet advertising and focus more on premium subscription services. Last year Yahoo! reported earnings of $43m compared with a loss of $93m in 2001. Much of Yahoo's revenue growth has come from recent acquisitions including the purchase last year of careers site HotJobs.com and a partnership with Overture Services to sell advertising on Yahoo! pages.

    This year Mr Semel expects Yahoo! to beat its previous records in annual sales and profits. Both were set in 2000, at the height of the tech boom. Yahoo! and eBay are among the 10 best performing stocks in the S&P 500 so far this year with gains of 36.9 per cent and 28.3 per cent respectively.

    But not all the dotcom survivors are industry giants. In the San Francisco Bay area a handful of smaller companies including CBS MarketWatch, Look- Smart and IGN Entertainment, an online video game company, have all recently reported making money for the first time. These quarterly profits fall far short of erasing the memory of multimillion-dollar losses. IGN, for example, has reported losses of more than $145m since its was set up while its profit in the last quarter was just $204,000.

    Nevertheless, they are not isolated cases. In the past year, many small and medium-sized web-based businesses have quietly moved into the black. For example, Ask Jeeves, the search engine company once written off as dead by most analysts, recently reported its second quarterly profit.

    Ask Jeeves first reported a quarterly profit for the end of 2001 but it included a large one-off gain from the disposal of its Spanish language business. After reporting losses for several more quarters, the company moved back into the black in the final quarter of 2002.

    Other companies that have moved quietly into profit include Autobytel, a car buying service, and Overstock.com, which helps companies liquidate retail stock.

    Nearly all the newly profitable websites have had huge costs in the past. For most, the money they have made so far is minuscule in comparison. CBS MarketWatch, a financial news site that is one-third owned by Viacom, has lost $241.2m in five years. Its profit in the last quarter was $854,000.

    Outside the US, dotcom survivors are harder to find. But companies such as Arm Holdings, the Cambridge-based semiconductor design group, have proved it is possible to build a successful technology business even in the current depressed market conditions. Arm has been boosted by strong demand for its chip designs for use in mobile phones, personal digital assistants and other consumer electronic devices.

    A group of European software vendors including Britain's Sage Group, Germany's SAP and SuSE, the German Linux operating system vendor, have also weathered the storm.

    Even LastMinute.com, the UK-based online retail group whose initial public offering in early 2000 came just before the internet bubble burst, is on track to make its first annual profit this year.

    Nevertheless, most internet executives acknowledge that their ambitions have been scaled back to more realistic levels. Even the most successful note that share prices are still way below the inflated levels seen in the late 1990s.

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