A few bad trading days don’t mean a company’s strategy is unsound, and Lastminute’s plans to add nontravel products and reach customers via mobile phones and TVs may pay off. But in Europe as in the United States and Japan, investors are serving notice that they’re finally paying a bit more attention to details like profits and business plans. World Online, an Internet service provider listed in Amsterdam that same week, also dropped below its issue price. Other recent disappointing debuts included Self Trade, a French online brokerage, and Lycos Europe, listed on the Neuer Markt in Frankfurt. After starting the year in a rally, Europe’s high-tech markets have slumped for most of March. The Nouveau Marché has plunged 26 percent since March 10; the Neuer Markt has fallen 14 percent off its peak. Peter Oppenheimer, chief international strategist for HSBC in London, argues that Europe’s so-called New Economy stocks—mainly telecom, media and Internet—are 30 to 40 percent overvalued and will continue to fall. “It’s not over yet,” he warns.
They’re also absorbing the lessons of the U.S. market. There, investors worry that the latest consumer-oriented stocks are weaker companies with copycat business plans. Business-to-business companies are the preferred plays, at least according to this month’s conventional wisdom. Venture capitalists who cut their teeth in the United States before closing in on Europe are spreading the B2B gospel—and, to hear some of them talk, taking the shakeout pretty calmly. “We’re not panicking,” quips Vic Morris, European partner for AtlasVentures, which has bought into several B2B start-ups in Europe.
The Old World is playing catch-up in terms of what kind of Internet model works. Many Internet service providers, for example, are getting slammed because their profits will suffer now that European telecom companies will allow unlimited access to the Net for a set fee. Such service is old hat in the States, but it only recently swept the U.K. and is now coming to the Continent. The current volatility in ISP shares lends some additional drama to the imminent IPO of T-Online, the Internet portal owned by Deutsche Telekom, which dominates the German market. T-Online, which will announce its pricing range next week, is expected to raise around €3.8 billion when it floats 10 percent of the company on April 17. T-Online and its bankers say they are going to err on the side of caution, setting the price low enough to avoid that embarrassing aftermarket plunge. Will everyone else be so careful? The markets will find out soon. In Germany alone 120 companies have announced their intention to list this year on the Neuer Markt (currently home to 232 companies).
Meanwhile the general sell-off may have left some buying opportunities out there. Neil Campling, tech-fund manager for Aberdeen Asset Management in London, thinks so. His picks include Baltimore, a London Internet security company whose price is down 38 percent from its peak, and Framfab, a Swedish consulting company that’s trading below its listing price. Investors like Campling are also mindful that while the WestLB Panmure Eutexx Internet index may be off 27 percent from its high of March 6, it has climbed over 500 percent since September. “It’s just a healthy shakeout,” he says. Healthy for some, anyway.
