While M-Web`s contentious move to block non-M-Web dial-up users has sparked furious debate among industry players, analysts believe the jury is still out on the financial effects of the move.
The company`s interim results to September 2000 reflected a growth in revenue of 75%, but the operating loss was also up by 17% to R167 million for the six-month period. This translated into a headline loss of 38c per share.
M-Web management said at the time of the release of the company`s interim figures that it would focus on growing towards profitability by increasing advertising and sponsorship from increased traffic to its sites, a strategy that will surely be frustrated by limiting the access to these sites.
Internet analyst Franca Di Silvestro says that while one cannot fault the company for following the route of paid-for content in an attempt to reach profitability, the content has to be compelling enough to warrant the price.
"Going the route of AOL might be a sound strategy, but the technology infrastructure must be there to back up the price. I`m an M-Web subscriber and I was frustrated by the access problems," she says.
"I also believe that its content is not strong enough to keep surfers from accessing the same information elsewhere without paying for it. The only exception is the SuperSport content, a true brand, which is difficult for competitors to replicate locally."
Di Silvestro says that even if M-Web`s sudden move to limit content to subscribers is in reaction to Absa`s free Internet access service, the M-Web share is tightly held by Naspers and MIHH, which means that small investors` feelings on the move will have little impact on the share price.
Merrill Lynch analyst Gordon Taylor says shareholders may begin tiring of the losses M-Web is presenting to the market.
"These days in the tech market if a company doesn`t perform, or chooses the wrong route, it doesn`t get a rap on the knuckles - it gets kicked to death. Some shares have lost up to 80% of their value on the back of one announcement."
He is, however, circumspect about Absa`s free service as a business model.
"Although Absa has not over-extended itself with the amount of money it has invested (an initial R5 million), I don`t believe free Internet will work in SA," says Taylor.
He believes free services will not be able to sustain the demand and their technology will be tested to the limit and users may have to suffer the irritation of time-outs, which may in turn drive them back to paid-for services such as M-Web.
The M-Web share price is trading at around 126c, down on its 12-month high of 755c. This puts the price:earnings ratio at -1.66.
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