September 5, 2003, 12:00 AM

Bright days on the horizon for Internet companies, says new S&P report

Internet companies that have survived the shakeout are in a position to thrive because they face less competition and have greater power to set prices than they did a few years ago, says a new analysis from Standard & Poor.

 

Internet-based companies that have survived the shakeout are in a unique position to thrive because they face less competition and have greater power to set prices than they did a few years ago, says a new analysis of Internet-based companies from Standard & Poor’s Equity Research Services. Improved company fundamentals and a stronger economy will contribute to a rebound for Internet firms, says S&P;’s Industry Survey on Computers: Consumer Services & the Internet, issued twice a year.

“The Internet sector shakeout of the past several years has left surviving dot-coms with less competition and greater pricing power,” says Scott Kessler, Internet software and services and Internet retail equity analyst of Standard & Poor’s Equity Research Services and author of the survey. “In addition, many of these companies have bolstered their positions by acquiring strategic assets, often from weaker competitors, and are likely to be wiser and stronger as they pursue long-term opportunities. They have sustained themselves through revenue generation while rationalizing their expense structures.”

Kessler bases his conclusions on a number of factors. “The three-year downdraft in Internet stocks ended in the first of half of 2003,” his report says. “TheStreet.com Internet Index, which tracks the performance of a broad range of Internet-oriented companies, dropped 74% in 2000, 36% in 2001, and 56% in 2002. From January through June 2003, however, it rose 42%.”

Furthermore, the report states, “The dot-com shakeout is over.” In the first quarter of this year, only eight Internet-related companies shut down, according to Webmergers Inc., a San Francisco–based marketplace for Internet properties. In contrast, 283 Internet companies discontinued operations during 2000, 501 in 2001 and 170 in 2002. The eight shutdowns in Q1 2003 were 88% fewer than in Q1 2002. “Standard & Poor’s believes that this small number of dot-com casualties indicates that the industry’s retrenchment phase is close to an end,” Kessler’s report says.

Internet companies with particularly bright futures are those that serve search, travel and music markets, S&P; says.

 

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