A Year Ago: UK Net startups not scared by Freeserve plummet

Companies planning share offerings say the market is still sound

A number of European Internet companies with a public offering on the horizon have reacted with defiance to the news that the share value of Freeserve and eXchange dropped dramatically Monday and Tuesday.

QXL.com, the European online trading company has in fact gone ahead and defiantly published its the share price range for its initial public offering today. A QXL spokesman says that it's time the stock exchange woke up to the less-than-subtle differences between the many Internet companies that operate out of Europe.

"Today's valuation has of course been calculated with recent events in mind," he says. "But it also reflects that QXL has a completely different business model to Freeserve. Investors have to start distinguishing between Internet companies. It's not good enough to say that if Freeserve fails, everything else will fail."

This spokesman admits however that it is not this common sense sort of attitude that necessarily rules to stock market. He also warns, "Of course the stock market is often driven by sentiment and this can have a dramatic effect."

Another company that has been making signs of getting ready to float is London based bargain-ticket booking agency Lastminute.com. Martha Lane-Fox, co-founder and director of Lastminute, argues that Freeserve's dip should not be construed as a warning sign for her company. "No, I don't think this will effect our decision to float at all. Lastminute has a completely different business model to Freeserve and eXchange. We don't just follow other US or European companies and this puts us in a more defensible position."

This attitude is applauded by senior financial consultant with Mintel research, Lance Close, who believes that enthusiasm for Internet stocks is unlikely to be shaken so easily. "I don't think companies will be put off floating, because the hype surrounding Freeserve still exists. Also, I have picked up a lot of scepticism after Freeserve announced plans to offer ADSL before BT. Most people don't think it has the infrastructure or the necessary cash."

However, Close is also keen to make the point that a genuine shake up in the way traders and pundits evaluate Internet businesses. "The market is definitely heading for some sort of rationalisation," he adds. "People will start thinking about actual revenue rather than simply the potential of a company."

The share drop has attracted disproportionate attention because Freeserve, as the UK's first major technology share floatation, was hailed as the beginning of a US-style high-tech boom when it debuted earlier this year.

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