Letsbuyit.com sets debut amid dot-com blues

Site is floating far below earlier expectations and may be running low on cash -- despite e-commerce success

The latest high profile dot-com to fall victim of wary investors and a gloomy market is Letsbuyit.com which has been forced to launch its long-delayed floatation at a drastically reduced price.

Letsbuyit, which opened its first site in Sweden in April 1999 and recently ran a high-profile marketing campaign around its UK operation, said Tuesday it will launch its long-delayed flotation next week on Germany's Neuer Markt at between EU6 and EU7 a share.

Like other online operations, Letsbuyit had planned on a public offering in the spring to raise much-needed cash. But it called off its May date, which would have priced at around EU15 a share.

Industry analysts point out that Internet companies are floating at whatever price they can get due to cash flow problems, and it's unlikely they can raise funds from venture capitalists in the current climate.

Letsbuyit denies it is running low on funds, claiming it can cover normal spending levels for another two or three months. The company says it has chosen to float now because markets have recovered somewhat, and more uncertainty may be ahead.

"The reason we postponed [the flotation] in May was because of the performance of the market. The Neuer Markt had come down [substantially]," says Peter Jaco, Letsbuyit's managing director for the UK and Ireland. "Now the market has come back marginally, and we're looking for further growth. Banks and institutional investors are saying, 'We want you to come to market.'"

Jaco admits the company has, like many dot-coms, spent heavily on advertising to build an early lead in the market, but insists the company has backed up the expenditures with strong growth. Letsbuyit has more than 735,000 registered users Europe-wide, around 20 percent of which are active buyers. It has sold 27,000 products so far, according to Jaco.

Costs continue to be high, however, running at about EU8m (about £5m) a month, with a EU24m loss in the first quarter. The company employs 260 people in 13 offices in 14 European countries.

A source close to the company claims Letsbuyit has taken drastic cost-cutting measures, pulling its advertising apart from that on BSkyB, which invested £10m in the company in April. Some Letsbuyit staff may not be paid this month, according to the source.

Jaco denies the report, saying the company continues to run several ad campaigns and insisting all salaries will be paid. He says the company plans no layoffs or office closures. "Of course we pay our people," he adds.

Letsbuyit's low IPO valuation signals a continued soft market for tech stocks: it is generally considered one of the better e-commerce offerings. Most recently it was ranked tenth in The Bathwick Group's list of top European pre-flotation Internet companies published in last week's Sunday Times.

Jaco says the company will continue to thrive, unlike more flashy services such as failed e-tailer Boo.com, because it is spending money wisely and is run by experienced staff. Others won't be so lucky, however: "Boo has gone and others will continue to hit the wall," Jaco predicts. "They haven't been professionally run. They're spending a lot on advertising without substantiating it through sales or membership acquisition."

Letsbuyit uses a "collective buying" model in which prices go down depending on how many people sign up to purchase a product.

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