Signs of recovery in dot.com market – but UK lags behind

The “burn rate” is the length of time a company can survive before needing additional cash to stay alive. The findings, published today, show that internet company burn rates have improved across Europe with the average rate being 20 months, an improvement of seven months since last December.

The research and analysis, which was done in conjunction with e-business consultants Fletcher Advisory, covers the top 150 publicly listed European internet companies with a combined market capitalisation of €200 billion (£121 billion). The survey also shows that:

• Despite an improvement in the average burn rate, the 20 most vulnerable internet companies in Europe are at risk of running out of cash within a year, unless they take direct measures to address the issue. At risk is a combined market capitalisation of €26bn (£15.7 billion), representing more than 10% of the European market.
• B2C (business-to-consumer) companies are most vulnerable, with an average burn rate of 15 months compared to 23 months for B2B (business-to-business) firms. This difference stems from continuing high marketing expenditure by the consumer-facing firms which, in some cases, equates to more than 400% of gross profit.
• Significant sector differences exist: the service and e-commerce sectors are the strongest, containing the most profitable companies with no burn rate; the content and software sectors are the weakest, containing the highest number of ‘burning’ companies.
• German companies are more secure than their UK counterparts. 50% of German internet companies in the survey are profitable, whereas only 26% of the British firms are making a profit.

Commenting on the burn rate news, Kevin Ellis, a partner at PricewaterhouseCoopers, said:

“Against a couple of high profile insolvencies, internet companies are waking up to the fact that the dot.com honeymoon is long over. What we’re witnessing is dot.coms throughout Europe beginning to take proactive steps to consolidate their position and regain the confidence of the market, including fundamental business restructuring or seeking appropriate merger partners. On the whole, the improving burn rates indicate that management teams are focusing not only on cash management but also on bringing forward their breakeven points to take control of their own destinies.”

The report indicates that Germany is becoming the dominant internet economy in Europe, accounting for: 45% of the whole market capitalisation; 56 of the top 150 companies; and 34% of the funds raised since the beginning of the year. The UK is second (35 of the top 150 and 16% of market capitalisation) followed by The Netherlands and France.