The company, which first sold shares to the public in July, posted a loss of 2.3 million pounds ($3.6 million) in the quarter ended Feb. 5, compared with 2.6 million pounds ($4.1 million) the previous quarter. It signed 21,000 new members each week.
Increased competition has forced the company to let customers connect to its service for a flat monthly fee without paying phone charges. That option, to start in April, means it gives up its share of revenue from telephone calls and must find alternative sources of income. Although the ISP has been banking on increased revenue from e-commerce and advertising, so far the main contribution has been from advertising.
"The largest part of revenue growth came from advertising, as they signed new deals with 126 advertisers in the last quarter," said Daniel Bieler, an analyst at Nomura International. "It will take more time to generate revenue from e-commerce."
Bieler rates Freeserve a "buy."
Revenue from e-commerce and advertising, which accounted for 55 percent of sales, rose 51 percent to 2.8 million pounds ($4.4 million) from the previous quarter. Total sales, including a share of phone tariffs paid by customers as they dial the free service, reached 5.1 million pounds ($8 million).
Freeserve's shares fell 34 percent last week after British Telecommunications, NTL and Telewest Communications offered unlimited Internet access for monthly fees as low as 10 pounds ($16.75). The shares rebounded 9.5 percent when the company announced its own flat-fee access offer.
Freeserve's Web site became the most popular in the United Kingdom in November, beating rivals such as Microsoft and Yahoo, according to MMXI Europe, an Internet audience measurement company. Still, competitors among the 10 most visited sites have been catching up: The research shows 32.3 percent of the estimated 7.8 million Internet users in the United Kingdom visited Freeserve at least once in January, down from 35.8 percent in November.
Freeserve has been making acquisitions and adding services to develop its revenue from commerce and advertising. It plans to offer online sports betting, video entertainment and tickets for the United Kingdom's National Lottery.
Today it said it has bought Intracus--which enables community groups such as fan clubs, customer forums and associations to communicate, organize events and share information on its SmartGroup.com Web site--for as much as 60 million pounds ($94 million) in shares.
"Freeserve is moving in the right direction," said James Mitchell, a technology analyst at Albert E. Sharp. "The dominant market for consumers will be community sites, the only way to generate and keep user affinity. People who go on Freeserve now only stay for a few seconds, while on community sites, they stay 20 to 25 minutes."
Freeserve is looking for more acquisitions to improve the content of its Web site and will start online share trading in April, chief financial officer Nicholas Backhouse said.
The company also introduced a Web site called Marketplace, which will allow small businesses to buy and sell online.
U.K. online retailing is expected to rise to 5.9 billion euros ($5.7 billion) in 2004 from 350 million euros ($340 million) in 1999, according to Fletcher Research.
Copyright 2000, Bloomberg L.P. All Rights Reserved.
Play video
There are currently no comments for this post.