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Freeserve preps women's portal, credit cards and auctions

Shares down as ISP posts £5m losses

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Freeserve is to launch an auction service, a credit card and a portal for women this quarter. This will pitch it against QXL and Loot.com on the first count; Egg and store card operators on the second; and the world and its dog on the third (Freeserve is the sixth company to announce its intention to launch a portal for British women). The company is also considering some big, but unspecified acquisitions to beef up content and subscriber numbers, CFO Nicholas Backhouse said, in a interview with financial news service AFX. "We raised net proceeds of £123 million. We have a cash balance, as at quarter end, of £98 million and the majority of the spend was accounted for by our investment in GlobalNet, TelePost and Babyworld. "As we go forward you can expect us to be doing more of those acquisitions... but for the big deals you'll just have to wait and see." His remarks accompany today's release of Freeserve's much anticipated maiden figures. They don't make terrible reading, but the market was no so impressed. In early trading this morning Freeserve shares dropped 7.5p to 142.5p. The trailblazing free ISP saw Q1 pre-tax losses before exceptionals come in at £5 million. Sales were £3.38 million for a slightly lengthened quarter (the figures cover the 16 weeks to 21 August), just over double the previous 12 weeks. In an interview with Radio 4's Today programme, Freeserve's John Pluthero declined to name a date when the company could expect to go into profit. But with e-commerce and advertising revenues doubling quarter and quarter, the trend was in the right direction, he said. These revenue streams have now overtaken connectivity in importance, Freeserve revealed in its financials. Pluthero swatted an impertinent question from the Today interviewer over Freeserve's supposedly lost customers, pointing to a net gain of 200,000 members in the quarter. A pity that Today didn't frame this question in terms of customer "churn", estimated by some analysts to be running at 40 per cent annually. In fact, Freeserve's annual churn rate could be even higher than that -- although to its great credit, it actually publishes its figures, unlike any rivals we can think of. During the quarter, Freeserve's average four-weekly churn (defined as accounts that had been inactive for more than four weeks) was 9.5 per cent, down from 11.9 per cent in the previous quarter. By other yardsticks, Freeserve also improved -- page impressions were 76 million in August, up from in 64 million in May. It claims more than 2.2 billion minutes of use for the 16 week period (1.5 billion for the 12-week period ended 1 May); Freeserve's membership stood at 1.406 million at the end of Q1, 19 per cent up on the previous quarter. In a statement about current trading, the company said its active membership is growing at 14,000 per week, compared with 11,000 during Q1. This is good, but it shows that the headlong subscriber growth of Freeserve's first days are now over. And the company will be hard-pressed to sustain its 30 per cent market share in the UK home ISP market (as estimated by Fletcher Research). ®

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