Cloudy outlook on Net counters
People should exercise extreme caution when selecting Internet investments as current leaders may falter on poor execution of business strategy in a market where only as few as four to five portals will succeed, warns Morgan Stanley Dean Witter.
In a research report on Asian portals, the investment bank said growth in revenues would be 'explosive' in the next four years to five years, but it did not expect any Asian portals to break even in the next two to three years.
Even market leaders were expected to achieve break-even only on pre-marketing and sales expenses within the time frame.
'We expect only four to five domestic portals to succeed in Asia,' the report said, citing statistics in the United States market.
'If US$4.6 billion of on-line advertising spending [last year] in a homogenous market such as the US has produced only three profitable portals, we are not sure that US$2 billion [in 2004] of on-line advertising in a heterogeneous market like Asia will support too many more profitable portals in the region.' Current leaders might be overtaken by later-comers if they failed to deliver their promise, it said.
'At such an early stage of the market, a lead of 50 per cent to 100 per cent in key metrics such as page views is easy to lose if execution slips. In most cases, we find that the second player is just about two quarters behind.' Survivors, however, were likely to be big winners, it said, pointing to first quarter respective gross profit margin and net profit margin of 86 per cent and 28 per cent enjoyed by US portal-operating giant Yahoo!, one of the few winners after several years of industry consolidation.