Would be nice if Freeserve hits it big. Read this:
Freeserve to value in the billions
By Bloomberg News
Special to CNET News.com
July 12, 1999, 10:30 a.m. PT
URL: news.com
LONDON--Freeserve, the United Kingdom's largest Internet service provider, said the company will be valued at as much as 1.51 billion pounds ($2.34 billion) when a fifth of it is sold on the London and Nasdaq stock markets later this month.
That will make it Europe's largest publicly traded Internet company less than a year after it was created by Dixons Group, Britain's
largest electronics products retailer. Freeserve will price some 1 billion shares at between 130 pence and 150 pence. Trading will start
when it sets a price July 26.
The boom in Internet stocks that has swept the United States is just beginning to reach Europe. Freeserve, which has been likened to America Online and Yahoo, offers a directory of online services, although it doesn't charge a subscription fee. Unlike Yahoo and AOL, however, it also gets a portion of its revenue from the cost of phone calls.
"There is bound to be a scramble for the stock," said Miles Saltiel, a technology analyst at WestLB Panmure Gordon. "But we doubt the after-market can sustain it for more than a few weeks."
At the top end of the pricing range, the sale values each of Freeserve's 1.32 million customers at 1,144 pounds ($1,774). That
compares with about $7,000 for each AOL customer, based on its market value of $139 billion and a subscriber base of almost 20
million users. However, in contrast to Freeserve, AOL receives about 85 percent of its revenue from subscription fees.
"Freeserve is most akin to an American portal site," said Saltiel, who ascribed it a value of 900 million pounds. "We're using the recent
sale of AltaVista, which like Freeserve is a strong regional portal, as a benchmark."
CMGI, an Internet venture fund company, agreed to buy a majority stake in Compaq Computer's AltaVista search site last month,
giving the portal an implied value of $2.7 billion.
Operating in the red
Analysts' estimates for the value of Freeserve varied between 800 million pounds and 2.5 billion pounds. The company, which will be
listed on the London Stock Exchange and the Nasdaq Stock Market, reported a net loss of 1.04 million pounds on sales of 2.73 million
pounds in the seven months to April.
It does not anticipate profit in its first year, ending in September. Analysts expect it to generate about 115 million pounds in revenue
from almost 5 million users by 2004.
Freeserve is spending to attract users and build market share to generate revenue from advertising and sales of goods and services in
the future. It has a third of the U.K. Internet access market, and its Web site is the nation's third most visited after sites run by Yahoo
and the BBC.
In the four weeks to May 29, Freeserve's Web site received about 64 million page impressions, of which 28 million related to sites
provided by content providers. However, Freeserve did not reveal the number of visitors to its site, often a better barometer of a Web
site's popularity rather than page impressions that measure traffic through a site.
Dixons will still own more than three-quarters of the company after the sale of shares. It will raise as much as 135 million pounds
from the sale of 90 million new shares in Freeserve, it said. It also will sell 63 million existing shares and have the option of selling
another 23 million shares.
Dixons will give priority to Freeserve users who registered as prospective buyers with a minimum investment of 250 pounds. About
114,000 individuals registered by the July 9 deadline.
Selling shares to subscribers will let Freeserve gather information on users, helping it to diversify with other Internet products. The
company foresees increased revenue from trading goods and services online, a market that Forrester Research expects will grow to
$13 billion in the United Kingdom by 2001 from $260 million last year. By the end of the year, Freeserve expects the biggest source of
revenue to be e-commerce.
Can it be profitable?
Still, analysts said it was unclear how much a portal site like Freeserve could earn from commissions and advertising as competition
intensified and traffic declined as users bypassed a portal site to go directly to Web sites of interest.
Dixons, based in Hemel Hempstead near London, said it will use the money raised by Freeserve to advertise and build unique content,
as well as to make acquisitions and investments.
"Our flotation will enable us to enhance significantly the service we offer Freeserve users," said John Pluthero, Freeserve's chief
executive.
Freeserve has agreed to buy Babyworld.com, a Web-based company that provides information for new parents, for 2 million pounds
($2.1 million) in cash and 1.7 million pounds ($2.6 million) in stock. It also will start a credit card with HFC Bank, a unit of Household
International, which will be issued through its Web site.
It previously bought a 13 percent stake in GlobalNet Financial, which provides financial information on its Web site, and invested $10
million in TelePost Holding for messaging and conferencing services.
Energis, which provides the telecommunications infrastructure for Freeserve users, will buy as much as 3.75 percent in Freeserve
over four years. It will buy 1.75 percent in coming weeks at 0.01 pence a share and can buy the remaining 2 percent in four equal
tranches between October 2000 and October 2003 at the IPO price.
The London-based company, which is Britain's largest Internet traffic carrier, receives between 30 percent and 60 percent of the
money spent by users to dial into Freeserve. Analysts estimate it passes on about 10 percent of that to Freeserve.
Users spend between 1 pence and 4 pence per minute on local phone calls. Since Freeserve estimates it made 60 percent of its 2.73
million pound ($4.25 million) revenue from phone calls, that would imply Energis made about 14.5 million pounds ($22.5 million)
during the seven months to April.
Credit Suisse First Boston and Cazenove are managing the share sale worldwide.
Copyright 1999, Bloomberg L.P. All Rights Reserved. |
