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Freeserve soars on debut
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July 26, 1999: 10:55 a.m. ET
Free Web access provider jumps 43% on launch, but investors cash in gains
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LONDON (CNNfn) - Shares in Britain's Freeserve soared Monday before a wave of selling drove down Europe's first major Internet stock offering as shareholders cashed in early gains.
Shares in the Internet service provider and Web portal opened at 215 pence in London trading, a 43.3 percent premium to their 150 pence launch price and reached 217 pence before falling back in heavy trading.
More than 45 million shares were traded in the first 30 minutes after the launch. Dixons (DXNS), the U.K. electronics retailer that started Freeserve last year, floated just 153 million shares representing 18.5 percent of the company's share capital
The launch price was at the top of the predicted range and values the company at 1.5 billion pounds ($2.37 billion).
The American Depositary Receipts listed on the Nasdaq Stock Market, with a ticker symbol FREEV, were priced at $23.67. The stock ended at 33, a 39 percent gain. Each ADR represents 10 Freeserve shares.
The U.S. listing advanced 38.6 percent to 31-7/8, a gain of 8-7/8.
Uncertain future
The rarity of the Freeserve issue worked for and against the stock as investors scrambled for shares, making it 30 times oversubscribed. However, some analysts said uncertainty over the valuation and Freeserve's future revenue stream made it fundamentally overvalued.
Miles Saltiel at broker WestLB Panmure warned the company's business model "is out of date" and said the shares had a fair value of just 60 pence. "Freeserve could be worth 3 billion pounds or nothing," he wrote in a recent research note.
Saltiel advises his clients to avoid the stock, once the dust from the IPO settles.
Chris Bell, fund manager of Framlington's Net Net fund, said technical factors also prompted an initial surge: "Freeserve is a one-off. There is a strange technical situation," he said. "There is a small float and that is split between Nasdaq and London."
European pioneer
Freeserve pioneered the free access model in the United Kingdom, rapidly racking up 1.3 million users since its launch last September. That took it into first place among U.K. providers, and inspired scores of copycat services by such diverse groups as soccer clubs, supermarkets and banks.
Previous market leader AOL Europe recently was forced to abandon its traditional model and follow suit. AOL Europe is a joint venture between America Online (AOL) and Germany's Bertelsmann.
The successful IPO is a boost to Europe's nascent Internet industry, and dwarfs previous Web offerings for investors.
Freeserve's valuation is based on a growing enthusiasm for all things Web-based in Europe, as investors eye the huge gains being racked up by Internet-related companies in the United States.
No profits, yet
The multibillion-dollar valuation of the company isn't yet backed up by a profitable bottom line, however. In its first six months, the company generated revenue of just over 2 million pounds ($3.6 million).
Freeserve takes a cut of local call charges and hopes to generate earnings from a share in e-commerce business.
Despite the general euphoria surrounding the IPO, some independent analysts have sounded a downbeat note.
On Monday, Peter Wyatt, an analyst at Credit Lyonnais Securities, issued a "sell" note on Freeserve, before investors had even got their hands on the stock. "It's based on the "gray" market price [of around 210 pence per share]," he said, and warned that similar companies in the U.S. would be valued nearer to 100 pence per share.
Dixons stock has doubled since it launched Freeserve, but lost 0.5 percent to 1,276 pence as London suffered a sharp sell-off.
-- from staff and wire reports
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