Fool's Eye View

[ December 4, 2000 ]

Lastminute.com

By Bruce Jackson (TMFGoogly)

lastminute.com (LSE: LMC) today announced its first annual results as a publicly listed company. Losses for the year ended September 2000 were £35.7m on total transaction sales of £34.2m. On a pure turnover basis, effectively their commission, annual sales were a somewhat lower £3.7m. Gross margin, based on total transactions, was 9.8% for the year and 10.1% for the fourth quarter. Based on pure turnover, gross margins for the same periods were 89.3% and 90.0% respectively.

Registered subscribers were 2.85m, up 37% from 2.08m in the past 3 months. In that same period, the number of items sold grew 20% to just over 108,000.

lastminute.com have recently completed the purchase of French e-travel group Degriftour. Newly appointed Chairman Allan Leighton commented that today's results and the £51.5m acquisition of Degriftour "...helps reduce our risk profile and brings forward the time when we expect lastminute.com to become cash flow positive."

More News
lastminute posts £36m loss -- BBC News

The Fool's Eye View

lastminute.com is a good little company. It has a good idea, a good brand name, and an efficient medium (the Internet) over which to transact business. But that's about where the good news ends. It's good, but it's little.

Annual turnover was just £3.7m. However, because lastminute holds very little stock (and therefore risk), gross margins are very high -- 90% for the year to September 2000. That's often the sign of a healthy business.

But you'd be mistaken. The problem comes when you look below the gross margin line. Operating costs of almost £43m are the killer. Of them, only marketing costs are variable. Switching these off would be very painful for this marketing lead company, although they can be scaled back -- in the quarter just ended, marketing costs were flat even though total subscribers jumped by 37%, a good sign.

Because of that very high fixed cost base, lastminute's hopes to become cashflow positive hinge entirely on rapidly increasing turnover. But the omens are not good. The pace of subscriber growth is far outpacing the pace of customer growth, meaning people are just not buying from the lastminute.com website. True, subscribers are not usually likely to become customers in the very first instance, but only just over 150,000 customers have EVER transacted with the company.

There are some positives. The 3m customer base is impressive, and the acquisition of Degriftour was a good move. The French company has historically been cash flow positive, and average selling price per item sold is more than double that of lastminute.com. Much can be learnt.

But the bottom line is the top line. To get to profitability, turnover has to increase from £3.7m to well over £50m, and that's assuming operating costs remain largely static from here on. That's a big ask in anyone's book.

lastminute.com had cash balances of £104m as at September 2000, although it will be splashing out £26m in cash for Degriftour, leaving it with £78m. Given the cash burn of £42.5m for the year just ended, that doesn't give lastminute.com much leeway in their quest for that massive sales growth.

The shares popped up 7.7% or 5.5p to 77p in morning trading, valuing the company at £131m. They are totally propped up by the cash balance, a balance that is rapidly shrinking. Any investment in lastminute.com is a pure gamble.

Where Next?

• lastminute.com current share price and news.
• The Fool's Rule Shaker portfolio -- owners of lastminute.com shares.

• The Motley Fool Research Industry Focus 2001 is now for sale! We give our take on 14 sectors -- including the Internet sector -- and identify 21 companies which may just be the winners of tomorrow. Order before December 10th and receive our 2001 Update Service free of charge.