The Pot of Gold

Topics: Google, Yahoo!, Time Warner Pages: 9 (1607 words) Published: January 7, 2013

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Pot of Gold
Profits arrive for dot-com
survivors with critical mass
and products that need
shipping only in cyberspace
ver since internet stueks began cratering two years ago,
iiivestury have been making
mental lists of ideas they
shouldn't believe in anymure:
selling goods for less than they
cost, for example, or companies with %2 million in sales
being worth $2 bilHun.
But the most important Internet idea
of all may be due for revisiting. As it
turns out. Web companies can make
money—a lot of money—once they get
big enough. At least 52 of the roughly
201) public Internet companies ^ ^ _
that survived t he shakeout of
the i)ast two y ears a re profitable now under standard accounting rules, and 15 to 20 more are likely to become so
by next year. Not su long ago,
only online auctioneer eBay Inc.
and a few software and consulting fÜTOs helping drt!amei*s build e-stores saw black ink. Now, there are
money-making Internet c(im|)anies in


Internet Veterans
Are Starting
To Cash In
Añer more than a few
bumps. Web companies
are turning profitable.
Once they're in the
black, earnings can
rise quickly because
each extra sale requires
little new spending.

travel, finance, and
a host of o ther
Four Web companies made this year's
ranking of the Info
Tt'cli 100: search engine Overture Services (No. 73), auctioneer eBay
discount-hotel broker (86), and
travel site Expédia
(87). That's up from a
measly one last year.
Anil all uf them a re
making money.
The leaders of the
Web pack are s tarting to show that once they turn profitable, they can quickly become big moneymakers. The reason is
operating leverage. That's accounting-speak for a simple concept: Once you invest enough tu build a Web site and your
basic operations, you don't need
tu spend much money as sales
rise. After you cuver your fixed
costs, the expense of processing
each sale is so little that profits
grow faster than revenues. That philosophy made for big I nternet losses

JThe search
I V y engine's
first-quarter revenues
jumped 175%, to $143
million, while expenses
rose 93%. Result:
First-quarter profits of
$29.3 million, vs. a $6.7
million loss a year

104 BusinessWeek / June 24, 200?

'The auction
¡site shows that
leverage can rise even
after a company is big.
First-quarter sales were
up 59%, to $245 million,
as costs rose just 39%.
Result: Profits jumped to
$47.6 million, from
$21.1 million a year ago.


early on—but t he payoff is at hand.
Online ti"avel agency Expédia Inc. is
a textbook example of leverage in action. In 2002's first quarter. Expédia doubled its sales, to $116 million. Yet
its overhead, including administrative
and marketing costs, rose only 8%, to
$(i;-î million. One big reason is that the
company already had paid for the computing gear it needed to handle t he highei- volume of ticket sales. "Marketing, engineering, and people—all of that scales really nicely," says Expédia CEO
Richard Barton. Expédia reported net

I The hotelreservation site
boosted first-quarter
sales 57%, to $165
million, while profits
jumped sevenfold, to
$12.9 million, The company expects earnings of
about $60 million for
the year.

/ T h e travel
( 1 I site's first\J I quarter sales
climhed 103%, to
$116 million, while expenses were up 8%.
That helped the company make
a $5.7 million profit,
vs. a $20 million loss
a year ago.





income of $5.7 million in the first quarter after losing $17.6 million in the yearearlier period. Thi'ee years after the e-commerce IFO
boom, a clear pecking order of profitability has emerged. The biggest monejTnakei-s: online travel, software, and financial-services firms. Why did these turn profitable ih^t? Because software,
financial sei-vices, and travel...
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