QXL faces doubtful future

Online auction house QXL affirmed its status as having the year's worst-performing internet stock when its share price fell by almost a third last week. Analysts have predicted that its future is in doubt.

The latest stock tumble means that the UK company, once hailed as a home grown dotcom success story, has lost 96 per cent of its value since the beginning of the year. The latest fall was triggered by worse than expected second-quarter results and news that the company is seeking £30m to see it though another year.

QXL's loss in the three months ended 30 September increased to £66.5m from £11m in the same period last year. The company's cash reserves have fallen from £77.7m to £45m in the space of six months.

Chief executive Jim Rose said he hoped that raising additional money through a private placement with Credit Suisse First Boston Equities - which handled QXL's flotation a year ago - would "take the whole issue of funding off the table".

He added that pro forma operating expenses have decreased significantly quarter on quarter, and that he expects to see additional reductions in future quarters as a result of initiatives such as a 20 per cent headcount reduction and a cut back on the corporate advertising budget.

The additional funding will keep the company going until it becomes profitable, he claimed, adding that QXL was "reasonably confident" it could meet analyst expectations for profitability in the fiscal year beginning March 2003.

But the second-quarter results suggest that business is slowing down. Although QXL's membership rose 27 per cent over the quarter to 1.4 million, the number of items listed for auction was stagnant at 7.4 million.

The latest crisis came in the same week that QXL completed its $243m takeover of Germany's Ricardo auction site in a bid to compete more effectively with US rival eBay. The company is now known as QXL Ricardo.

But the moves may not be enough to save the company, according to Derek Brown, an analyst at Robertson Stephens, who advised the company to look for a buyer.

First published in Computing