Fool's Eye View

[ June 26, 2000 ]

Freeserve Finals

By Maynard Paton (TMFMayn)

Carburton Street, London -- Although originally due tomorrow, Freeserve (LSE: FRE) has this morning announced its full-year results, the change prompted by weekend speculation that the plans by Dixons (LSE: DXNS) to offload its 80% stake in the ISP had collapsed. And indeed, Freeserve confirmed today that "whilst certain discussions continue, Freeserve does not expect that this process will lead in the near future to a bid for the whole of Freeserve".

There are two parts to any Internet company's results -- those all-important operating statistics and the even more important cash burn rate.

The statistics first. Page impressions rose 137% to 151.5m in May 2000 compared to May 1999, although like most Internet-based businesses, impressions have slowed in recent months. February witnessed 162.8m hits. Active registered accounts increased by 64% to 1.934m by the April 2000 year-end. However, it is notable that the rate of "sign ups" at Freeserve is slowing. There were 672,000 new customers in the 12 weeks to 1st May 1999, falling to 589,000 in the 12 weeks to 5 Feb 2000, falling to 543,000 in the 12 weeks to 29 April 2000.

Combine all that with a one third drop in the churn rate to 8.2% too, and the surging statistics caused annual sales at Freeserve to soar 614% to £19.5m.

That's all very well and good. But, with investors gradually casting aside those irrational ideas of judging Internet companies on the number of subscribers or visits to its website, it's worth paying attention to the accounts and thoughts of Crash and Burn.

Today's figures in brief:

                  12 weeks to 52 weeks to  52 weeks to
                   29/04/00     29/04/00      01/05/99

Sales (£k)           7,251       19,557        2,737

Pre-exceptional
Operating loss (£k) (5,006)     (20,412)      (1,511)

Let's take the fourth quarter operating loss of £5m, then add back the £1m of interest that Freeserve received in those three months, and then multiply the resulting figure by four to give an annualised net loss of £16m. With just £31m in the bank at the April year end, Freeserve will eventually run out of cash in around 22 months time. But after having its shares plunge 15% in early morning trade to languish at 373p, Freeserve is still valued at £3.7b. To put it mildly, a lot of optimism remains in the share price based on today's cash figures.

Alongside the numbers, the corporate activity speaks volumes for the underlying value and prospects at Freeserve. Think about it this way. Who knows most about Freeserve, it's potential and true worth? Dixons, that's who. So, if Freeserve really is the goldmine that its shareholders currently consider it to be, why therefore should Dixons consider disposing of this investment jewel?

Finally, consider the fact that continental ISP players are not prepared to purchase the Dixon's owned Freeserve stake. What do we have as a result in the ISP investment sector? Involving the most knowledgeable ISP investors there are, one is wanting to sell while the rest are not wanting to buy. This current state of affairs, rather than the figures, should inform shareholders about the real prospects of any investment in Freeserve.

Related Links
• Is there life after Freeserve?
• Freeserve Duelling Fools -- the Bear
• Freeserve Duelling Fools -- the Bull
• Freeserve discussion board | website
• Freeserve annual results
• Crash And Burn