As European web winners gain, the weak get weaker

The largest internet companies in Europe are shaking off the dot.com gloom and increasing profitability while their smaller counterparts languish far behind, according to a survey published yesterday.

Of the leading 150 publicly listed European internet companies, 38 per cent were profitable in the fourth quarter of 2000, up from 28 per cent the previous quarter, the PricewaterhouseCoopers/Fletcher Advisory Report showed.

The sector is polarising into winners and losers. While the top 25 per cent of companies (as measured by share price performance) have boosted sales and cut marketing costs, the bottom quarter have struggled to keep costs down and improve turnover. "There are still some 18 per cent of companies whose cash burn rates mean they have insufficient resources to last beyond 12 months without new funding or significant remedial action," the report said.

Kevin Ellis, a partner at PricewaterhouseCoopers, said: "People are spending less to achieve revenues because they have to ­ they can't get outside finance. Companies are [also] realising that they must make profits earlier to survive."

Mr Ellis expects this to continue. "It is the same companies that are increasing profitability; as they get strong, the weak get weaker," he said.

The companies spearheading the turnaround in the sector are internet service providers, half of which are profitable, compared with the market average of 38 per cent. Scraping the barrel are business-to-consumer companies. "Nineteen per cent of them are now worth little more than the cash on their balance sheet," the report said.

New entrants cannot raise funding and so will not threaten top companies, he said.

- INDEPENDENT