QXL.com Ltd, the European online auctioneer, has revealed the price range for its initial public offering is much lower than analysts were expecting, valuing the company at 212-242 million pounds ($344m-$393m). The conservative pricing is believed to be in response to the recent decline of London’s flagship net stock, Freeserve Plc, which continued it descent today, putting more negative space between itself and its offer price.
The main problem facing QXL, apart from the current cynicism about net IPOs in the UK, is its pan-European nature. Based in the UK, Italy, and France, QXL has the express desire to become for Europe what eBay Inc has become in the US. But the continental European arms of QXL face more difficulty than at home. The company’s prospectus says: We have yet to derive significant net revenues from members accessing our web sites in German, French or Italian, – a mere 11% of revenues.
The firm also faces stiff competition outside of the UK. Ebay recently purchased alando.de, a German online auction house, and intends to move further into Europe. It also has several local competitors for each of its European sites. Although QXL plays up its local stature in Europe, investment bank WestLB Panmure, in a research paper published this week, said it reckons the firm will face the same problems moving around the continent as its US counterpart, which has far more resources to play with. WestLB puts a valuation of closer to 150m pounds ($240m) on the company.
Regulation is also an issue. QXL admits that in some of its locations the legality of running an online auction is debatable. Italy, for example, has recently introduced legislation that may place an outright ban on conducting auctions for new goods – a key revenue stream in QXL’s business model. Likewise, in Germany and France, auctioneers may not auction items for their own account, meaning QXL would need to rely on third party businesses and consumers to sell items using the firm as an intermediary only. In the UK, QXL acts as vendor and auctioneer for some goods. In addition, the consumer-to-consumer sector is not yet providing revenue for QXL. It takes a commission on business sales but, as it builds up its customer base, has yet to introduce a commission charge for consumers who wish to sell via the site.
QXL had 57,900 registered users at the end of June 1999. There is no churn rate, as QXL does not expunge registration details if the user does not utilize his account. For the three months ended June 30, 1.9m pounds ($3.1m) passed through QXL in business-to-consumer auctions, with a further 1.2m pounds ($1.9m) in consumer-to-consumer. It recorded revenue for that period of 1.9m pounds ($3.1m) and a net loss of 3.3m pounds ($5.4m). The final offer price will be announced on October 7, when QXL begins trading on the London Stock Exchange and the Nasdaq market. Credit Suisse First Boston Corp is acting as lead underwriter for the offering.
