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High-Tech Firms a Local Bright Spot
Ramp up growth as revenues rise, VC funds flow; public firms set back
Crain's New York Business | Amanda Fung
The technology market crashed in 2000, pulling the national economy down with it. New York City lost tens of thousands of high-tech jobs, and hundreds of local dot-coms tanked.
Now, tech remains a bright spot in an economy roiled by crises in the housing and credit markets and the resulting meltdown on Wall Street.
"The tech sector has been holding up in this prolonged economic slowdown," says Scott Kessler, an equity analyst at Standard & Poor's who covers the industry.
A far cry from their predecessors, second-generation firms have established profitable businesses that continue to hire staff and grow revenues.
The number of computer system design jobs in the city rose about 3% from January through May, to about 44,900, according to economist Barbara Byrne Denham.
Google, which employs about 500 people in its Manhattan office, has at least a dozen New York openings posted on its site.
The local players in the $35 billion industry, mostly privately held and backed by venture capital, are expected to maintain double-digit revenue growth.
"We are doing great," says Andrew Koch, director of strategic planning for TheLadders.com, which operates a site for those seeking jobs paying $100,000-plus. Candidates pay for tiered subscriptions, ranging from $30 for one month to $180 for a year. TheLadders.com's headcount has risen by 31% since the end of last year, to 250. Revenues have doubled every year since 2004, and the company is expected to achieve the same growth rate this year.
"When times are tough, people get laid off and need to find their next job," Mr. Koch says.
Mimeo.com, an online printing service, has hired 98 application development and sales professionals in 2008 and expects to hire at least 85 more before the end of the year. In 2006, Mimeo Chief Executive Adam Slutsky projected that sales would surpass $50 million that year. Revenues rose 40% in 2007, according to the company, which would not disclose current sales figures.
Most New York tech firms, including publicly traded ones like wedding publisher The Knot Inc., rely on advertising and are benefiting as more spending moves from traditional media to the Web.
The Knot's online ad revenues jumped 20% during first-quarter 2008, to $12.9 million. Similarly, revenues at health information site WebMD rose 14%, to $81.7 million. Even Monster Worldwide Inc., which was hit by a stock-option scandal last year, beat analysts' estimates: It earned 18 cents a share on revenues of $363 million—up 13% from the year-earlier period.
Smaller, privately held digital marketing shops like MediaWhiz are doing well, too. A pullback in financial clients' ad spending has been offset by outlays from other sectors. Revenues jumped more than 25% in 2007, according to CEO Jonathan Shapiro, who expects a similar performance this year.
The buoyant businesses also continue to attract venture capital. Investments in New York area firms surged 35% in the first quarter, according to PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report. In contrast, such investments nationwide fell by 5%.
"We are still funding companies here," says Ned Carlson, managing director of Dawntreader Ventures. New York firms' focus on online advertising and marketing makes them especially appealing to investors, he adds.
The slump tends to be primarily in New York's publicly traded companies, which are suffering along with the broader market.
The Knot and WebMD were slammed by first-quarter impairment charges connected to investments in auction-rate securities and to expansion-related expenses; their stocks have taken a beating as a result. The Knot's shares, which closed at $10.95 on Friday, have plunged 44.9% in the past 52 weeks. WedMD closed at $33.85, off 29.5% for the same period.
Recent reports indicate that online ad growth is slowing. According to the Interactive Advertising Bureau, Web ad spending fell 2% in the first quarter from fourth-quarter 2007, to $5.8 billion, the first quarterly decline in more than three years. But volume is up 18% year-over-year.
"The online ad market can't grow at 100% forever," says former DoubleClick Chief Executive Kevin Ryan, who now runs AlleyCorp, a holding company of six Manhattan-based firms, including luxury discount e-retailer Gilt Groupe and cloud computing startup 10gen.
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Media ContactAnthony Zaccone 917.289.3023