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Wednesday, 31 January, 2001, 00:16 GMT Europe's web firms keep burning cash

Europe's internet companies are running out of cash at an ever faster rate, a survey suggests, but France is gaining ground among the survivors of the dot.com stakes

According to PricewaterhouseCoopers (PwC), an accountancy and consulting firm, only 28% of Europe's biggest internet companies were making any profit during July to September 2000, down from 45% in the three months before.

Out of 150 firms in the survey, 23 are "in the danger zone" and could run out of cash by September this year.

The costs of gaining market share are at the heart of the problem.

Sales of dot.com companies may be rising fast, but so is their spending. According to PwC, the majority of dot.coms is "burning cash", losing more money and investment capital on their businesses than they earn through sales and services.

Burn rate

The "burn rate" - the time left until a firm runs out of money completely - also worsened. On average European internet firms had just 18.5 months to live, down from 20 months in the spring of 2000.

The survey sampled the largest dot.coms in Europe, based on market capitalisation. These 150 top firms, however, represent 95% of the stockmarket value of all European internet firms at the time, according to PwC.

Worst hit were so-called business-to-consumer (b2c) e-tailers, which on average had a life expectancy of just 16 months.

B2b ventures - doing business-to-business e-commerce - were faring better, with a burn rate of 21 months. This compares with a burn rate of 23 months in a survey three months earlier.

PwC names the key reason for the worsening burn rate: The tech slump on the world stock markets that started in April 2000. Established companies found it difficult to raise fresh money, and new dot.com ventures raised far less money than they had hoped for - and now need to survive.

Investors should be especially wary, as according to PwC, "the overall slump masks increasing polarisation between the best and worst performing internet companies in Europe".

While the dot.com successes nearly tripled their value during the survey period, the worst performers saw their value collapse by 75%.

It also holds true for the burn rate. While some firms have plenty of cash to spare, many are in desperate need of extra funding.

French dot.com surge

When PricewaterhouseCoopers published its first "Internet 150" report in September last year, the success of German internet firms came as the biggest surprise.

Germany was shown to be home of more than one third of Europe's top internet companies, while the UK was in second place.

Three months later, the picture has changed.

Two more UK firms have entered the Internet 150, boosting the British contingent to 37. However, they make up just 16% of the total stockmarket value of the sample.

Germany, once represented by 56 web firms, now has 45 in the survey - with 35% of the total market value (down from 45%).

France, meanwhile, has 22 companies in the Internet 150, a gain of just 3 companies, but its stake in the overall market capitalisation rose from 7% to 19%.

This, however, was mainly driven by the stockmarket flotation of French internet service provider (ISP) Wanadoo.

This trend holds true across the board, ISPs account for much for the investor value of the dot.com sector, say the analysts at PwC .

The survey was compiled in conjunction with e-business strategy consultants Fletcher Advisory.

-- Rachel Gibson (rgibson@hotmail.com), January 30, 2001