Online auctioneer QXL is reported to be considering putting itself up for sale to raise capital.
QXL’s current approach is cost-heavy, as it establishes new companies in each country it enters. It views this as necessary to exploit first-to-market advantage, by keeping country sites localized. But it means that unlike eBay, break-even point is still some years away.
Even though the company has taken steps to reduce these costs by increasing the range of goods on offer from merchant partners and expanding membership to increase consumer-to-consumer sales, it is still burning through its cash reserves. The company is spending GBP15 million per month, which will mean it will run out of cash within a year. Its share price already only values the company at GBP50 million. A rights issue to pay for its acquisition of Germany’s Ricardo combined with the end of the IPO’s lock-in period will drive the price down further. So it has little chance of raising the funds it needs on the stock market.
eBay, on the other hand, is profitable and has no trouble raising cash. Its business model and first-to-market advantage have served it well in the US. But whilst its US operations are profitable, its European wing is faring little better than QXL’s. The company just has access to a ready source of cash to develop it.
In addition, QXL has a serious advantage over eBay in Europe – it is in a position to cash in on the imminent mCommerce boom. By 2004, a third of Europeans will have a WAP phone; QXL’s recently acquired Bidlet subsidiary allows it to offer mobile auction services (including WAP and two-way SMS bidding) across its European sites. eBay currently offers hardly any mobile services, and if it does have an mCommerce strategy it has not made it public.
QXL’s growth prospects are high. If anyone with the cash to fund its short-term losses buys into it now, then they should see the company strongly outpace eBay in Europe when mCommerce booms. One potential buyer is the company’s strategic partner Lycos Europe – auctions will attract people to the portal, and the portal will draw people to auctions. But the company’s current market value is so outrageously low that it would be a good investment for almost anyone.
