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MARKET COMMENT
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Thanks to a string of TV adverts LetsBuyIt.com has become one of the better-known e-commerce companies operating in the UK. Although it is based in this country it is a Dutch company listed on the German Neuer Markt. It floated in July at 3.5 euros which valued at company at £190m. After a brief honeymoon period the shares have headed steadily south. Last week the company asked for its shares to be suspended so that it could seek protection from its creditors. Under Dutch law trustees are appointed to advise the company about its options. The company is meeting with these trustees today and it is expected that it will look to delay debt repayments in order to preserve cash. This morning the shares resumed trading. At one point the shares fell by two-thirds to just 0.4 euros. The shares have since rebounded to stand down a mere 40% on the day. At the current level the company is valued at just £40m. At the end of September the company had some £30m in cash but it reported a cash loss of £13m for the third quarter of the year, even after a 70% reduction in its marketing spend to just £5.5m. Given that the TV ad campaign seems to have been resumed recently it seems unlikely that LetsBuyIt.com has enough cash to carry much further than the first quarter of 2001. It's another nail in the coffin for the "concept" Internet company. The idea of getting price reductions for customers by bulk buying was a unique service and about as heavily promoted as any e-commerce service has been to date. I always thought "nice idea" but never once visited the website. Gross profits for the third quarter were just £0.5m and that was spread across 14 different European countries. It doesn't bode well for UK players like Lastminute.com (LSE: LMC) and QXL ricardo (LSE: QXL) who have also been big spenders but are still seeing only a trickle of customers coming through the door. All these companies need to reexamine how they are going to pull the necessary customers to cover their high fixed costs. Many Internet firms are now trading at close to or even below their cash balances. But don't think that they can't fall any further. When you are spending cash as quickly as these companies are the cash value does not place any floor under the share price. The share prices of these companies can fall to zero. And many of them probably will. Where Next?