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April 21, 2000, Volume 1, Number 16TRACKING
THE TRACKERS: Unless you were living without any connection to the outside world during the business week that ended on April 14, 2000, then chances are you did not miss the precipitous 25.3% drop in the Nasdaq composite index or the 7.3% decline in the Dow Jones industrial average. While there was a slight rebound in the days that followed, the stocks of online retailers are still trading far from the highs of the last year. For example, eToys, once considered a front-runner in the online toy game, has recently traded as low as $4.50 a share, off nearly 95% from its 52-week high of $86. Even the so-called giants in the e-commerce category have been humbled, as Amazon.com, which traded at $113 a share in the last year has seen its shares trade as low as $40.81 (-64%) in the last year. A closer look reveals that this downturn has not just affected online retailers, but also the companies that have been active in projecting online sales. As pointed out previously in ICSC's Research Quarterly, a "cottage industry" has grown around estimating the consumer sales generated via online channels.1 Instead of looking at the various forecasts from these companies, which are widely available, ICSC decided at this time to study the financial performances of the publicly held Internet research firms. We have listed these below and have also included, for reference, those that are privately held, currently dependent on venture capital, or subsidiaries of larger companies. (See Table 1.) Please note that forecasting consumer online sales is just a small part of what these companies do, as many of them also investigate the technology and business-to-business marketplaces, among other things. Table 1
Table 2 provides us with some insight into the financial performance of the five major publicly held researcher firms that provide data on online sales. While most of the stocks of these companies are trading nearer to their 52-week lows than their highs, it is notable that Forrester's stock is now well above its 52-week low. In light of this recent performance, it may be interesting to note that Forrester has set itself apart from its rivals as of late, "predicting that because of weak financials, competition and investor flight, most Internet-only retailers will be out of business by 2001."2 Table 2
Since many firms collect revenue from other efforts, especially conferences, a look at the proceeds generated strictly from research is necessary. The Gartner Group, with the greatest intake of the five, enjoyed a 10.6% increase in research revenue for fiscal 1999 over fiscal 1998. The largest percentage gain from 1998 to 1999 was realized by Jupiter (+274%). (See Table 3.) Table 3
Looking at the impressive gains illustrated in Table 3, one might be initially puzzled as to the recent stock performance of these companies. In Table 4, we see another, perhaps more critical gauge of company performance, profitability. While some have yet to show profits, it does appear that they are moving in the right direction. The question may be how much time investors give them to reach a substantial level of profitability. It may be no coincidence that the company in this table that saw its net loss widen also experienced very poor stock performance over the last year. Table 4
Until recently, stocks of online retailers were skyrocketing as a result of investor confidence in a wired marketplace. At this time it would appear that this exuberance is waning, or at the very least, on hold. Could the same also be said in regard to the companies that make it part of their business to study e-commerce? True, while the downward trend in the performance of these researcher's stocks may be attributable to the descent of the technology market sector in general, we can't help but wonder if other factors are also at work here. We are currently on the threshold of a demystification of the "science" of reporting Internet sales. The Department of Commerce released its first report on e-commerce in March, and will eventually release online sales on a category-by-category basis. This may reduce the demand for sales "estimates" from numerous independent firms. According to some analysts, we will soon see the "winnowing out" of superfluous dot-coms;3 may we yet see the same process among the Internet researchers? Indeed, this will an area worth watching in the long term. 1
Baker, Michael. The New Cottage Industry-Forecasting Internet Retail
Sales. ICSC Research Quarterly, Winter 1998-99
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