Cutting costs by trimming employee rolls at NBC Internet is probably a smart move for the money-losing venture, but the company needs to increase traffic on its website and quickly integrate its properties. The fall launch of its new Web property may be too late.
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That will leave the 850-employee company with about 680 on the payroll by year end, Bloomberg reported. Shares of NBC Internet declined steadily in the first quarter as the dot-com market wobbled, then rapidly in June after the company said Q2 and full- year revenues would come in lower than expected, mainly because of a weak dot-com advertising market. Since 82% of the company's revenue comes from advertising... well, you get the picture.
What's the real problem?
NBC Internet's performance has been less than dazzling. In July 1999, the company's combined properties, which include Snap.com and Xoom.com, had 16 million unique visitors, according to Media Metrix. This performance was good enough to make NBC Internet the seventh-most visited site on the Web. Fast forward to June of this year and its combined properties had about 16.8 million uniques, putting it at number 11 on Media Metrix's Top 50 listing.
Also, the company's daily page views decreased to 32,770 in the second quarter from 33,634 in the first, according to the company's most recent quarterly report. This isn't good, though investors should remember that Web usage peaks in winter, meaning the numbers were impacted by seasonality.
The death of synergy
Initially I had two minds about NBC Internet. Its mix of properties, including Xoom.com and Snap.com, created nothing but brand confusion. Its move to fold all these properties under the NBC Internet umbrella, announced in June, came about eight months late, and the company was already hopelessly behind portal leaders such as America Online (NYSE: AOL) and Yahoo! (Nasdaq: YHOO). It plans to unveil a new website, integrated under the NBC name, this fall.
At the same time, I didn't take NBC, which owns 47% of NBCI, or General Electric (NYSE: GE), which owns all of NBC, lightly. My thinking was that NBCI didn't have to be an early success. Even though it burned through $122 million in cash in the first six months of 2000, it ended the period with $323 million in cash, equivalents, and short-term investments, thanks largely to a well-timed secondary offering. With deep-pocketed investors and the NBC brand name, NBC Internet could hang around and perhaps become a late success.
This may prove to be true, but I've changed my thinking. Time Warner (NYSE: TWX), the world's largest media company, couldn't lift its Internet hub, Pathfinder, off the ground so why should I think NBC can turn its own Internet concept into a winner, even with the headstart in UVs provided by Snap and Xoom?
I'm done believing in synergies between companies in radically different mediums, at least until I see a winner.
Your Turn:
Is the land-grab theory in fast growth markets like the Internet correct, or can a late bloomer like NBC Internet succeed if it executes? Post your thoughts on the NBCI discussion board.
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