Analysts shrug off Freeserve share drop

Observers say the decline of Freeserve and eXchange Monday and Tuesday doesn't necessarily reflect on the tech market as a whole.

Analysts and industry pundits have expressed little surprise or excitement over the news of Freeserve's shares sinking below their July flotation price of 150p for the first time. (See "Freeserve, eXchange shares tumble".)

"This is as can be expected," said Nick Jones, Jupiter Communications. " It has a business model that has few barriers to entry and it has spent too much money on the wrong things such as Babyworld-type content sites."

The 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.

A Virgin spokesman echoed the belief that an ISP needs to differentiate itself to be successful: "We felt we needed to refocus to become a content provider, as it is important to offer more than just being free. There is often little to differentiate a lot of ISPs."

Other service providers with dreams of going public will be looking closely at Freeserve's performance, said Jones.

"This will mean that other companies thinking of going public will make sure that they dot the i's and cross the t's on their business plans," he said. "They will also need to have a much tighter business plan. ISPs such as Xtreme are moving into Europe and using a software overlay to qualify users so that it can sell eyeballs to advertisers."

Arjay Chowdry, managing director of pioneering free ISP Line One, believed that although this may not be the optimum time for an IPO, there was essentially nothing to panic about. "Obviously, if we were thinking about floating, one of the factors to think about is the appetite for Internet stocks, and if investors are feeling bearish then it is obviously not the right time. But I believe that this is just a blip and nothing serious," said Chowdry.

According to Chowdry, "the reality is that the market has been up and down like a yo-yo in the US. This is normal stock exchange volatility, I don't think that there is anything wrong with either Freeserve or the Internet market."

James Ibish, research manager European ISP markets, also shrugged off the importance of the Freeserve share plummet. "This was to be expected and it's not really very important. There was a widespread sentiment that Freeserve was overvalued and of course that was going to bring the price down. The whole market is not doing as well it has been recently," he said.

In the past few days, several leading public figures have given bullish forecasts for Britain's online-business future. Prime Minister Tony Blair last week said high-tech development communities in the UK are capable of being "rivals to Silicon valley", although he warned that Britain is falling behind the rest of Europe and the US in e-commerce.

Andy Grove, former chief of chipmaker Intel, also painted a bright picture of Britain's place in the e-business world, suggesting at a London briefing Tuesday morning that the nation is right on track. "Once people like Tony Blair pick up the banner, it is not necessary to issue wake-up calls," Grove proclaimed.

But several recent reports, including the government's, have pointed out underlying issues, such as the UK's banking system, that are holding Britain back in the online-business race. The UK also lacks the high-flying tech shares that have kept the US technology market afloat over the past few years.

Take me to the e-commerce special.

Matthew Broersma contributed to this report.