Accounting & Tax

Tech Companies Rewrite Rules – with Black Ink

Internet companies make the slow transition to profits. StaffAugust 14, 2001

A new trend emerging from the ashes of the Internet bust is profitability, according to a report in the Wall Street Journal. Inc., for one, reported its first-ever profits two weeks ago, and others are reporting positive earnings.

Not all of these Internet companies meet the test of profitability by generally accepted accounting principles — and the encouraging results could be short-lived, says the Journal. But many of the companies would be profitable in the latest quarter if not for goodwill amortization and some other noncash items. Starting next year, companies won’t be required to amortize goodwill.

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Some Internet companies that are unprofitable are losing less money these days, says the Journal. In December, the 40 Internet companies that make up the Dow Jones Internet Index reported net operating losses of $14.7 billion for the fourth quarter. By March of this year, the quarterly losses had shrunk to $11.9 billion. In the latest quarter, the 35 companies in the index that had reported results so far narrowed their losses to only $6.2 billion, excluding an $11.2 billion noncash write-off of goodwill at Internet security firm VeriSign Inc.

One of the lessons these mild successes offer is knowing what kinds of businesses work online. In general, the companies that are surviving provide services that are information-intensive, rely on some Old Economy roots and require little or no physical transport of goods. Many of the companies also spent heavily to build their brand names. And many of them are in the travel business — which has proved to be one of the most attractive online sectors, says the Journal.