Keeping a canny eye on Net bets
It may not be Net fever, but Poland's cyber world is about to launch into financial hyperspace. It certainly broke new ground last week when Interia became the first portal in Central and Eastern Europe to be listed on a regional bourse, making its debut on the Warsaw Stock Exchange (WSE). Arena and Hoga are trailing close behind as the second and third portals to hit the exchange in the next few months.
Many industry observers say the appearance of Internet portals on the WSE is a positive sign of the normal course of growth for healthy dotcom companies. Others, however, contend it marks a last-ditch attempt by the unprofitable online enterprises to raise massive chunks of capital to pay for their unprofitable operations.
Both sides are right. Like old-economy companies that have turned to the equity markets for capital to finance their growth, dotcoms should have their day on the bourse as well. Yet, Poland's new economy is sending mixed signals to investors.
Internet access and usage is making slow gains in the country, while e-commerce is insignificant. All portals carry huge debt and have little revenue, making them ultra-risky investments. Some may fold completely before they even reach the stock exchange. The Polish portals Ahoj and Arena, for instance, have recently laid off employees because of cash crunches.
Yet the fact that Poland's capital markets are following the same path of new- economy development as in the U.S. and Western Europe by financing the growth of the Internet is an extremely upbeat prognosis. To help the dotcom start-ups along, the Securities and Stock Exchange Commission (KPWiG) permits them to be listed on the WSE under the relaxed requirements of SiTech, the special listing for IT and telecom stocks.
The bottom line is that while risk and return go hand-in-hand, investors should let themselves be guided by old-economy rules before buying shares of Polish Internet companies. Smart investors need to look beyond the PR hype to distinguish healthy companies with sensible growth strategies from cash-burning ones without any solid prospects for generating profit. They should also consider the portals' major shareholders. Those from the TMT sector (telecoms, media and technology) are usually committed to developing their portals as part of their own growth strategy and are best prepared to transfer their technological know-how. On the other hand, portals with purely financial backers who provide quick, but short-term cash solutions are bad bets since they usually cash out on their investments within a few years.
