Freeserve has become the child that did so well it found itself at university at the tender age of one - everyone expected a fall, but do we really want to see it fail? Not that it will if those clever, hard-working chaps there have anything to do with it, and not while it keeps bringing out new services, such as InsuranceCity.com, to tie in new users. But the one thing it has little control over is its fluctuating share price and that the doubters are already dismissing Internet IPOs (initial public offerings) as flashes in the pan. But is this just the market trying to find a sustainable, realistic ground?
City analysts are now severely talking Freeserve down, expecting it to settle at just 60p, under half of its hyped-up 150p July issue price and well below its 244p peak. Granted the competition has intensified beyond belief since its launch - there must be over 250 free ISPs in the UK now - but Freeserve's advantage is its brand and it's synonymous with the term free ISP. Expect it to claw back value tomorrow when it details its latest user numbers, believed to be around the 1.4 million mark.
I think part of the problem is the market got bored very quickly with Freeserve, and overvalued Internet stocks from young firms that have never made a profit. Freeserve's offer was oversubscribed 30 times back in July, but now some analysts are even advising a sell.
Of the 12 European Internet IPOs since June, all but two are now trading below their first day's close-of-business price.
QXL isn't having any doubts about forging ahead with its IPO, but with a reduced price tag of pounds 242m on shares priced 180p-205p. QXL is clearly going to experience a tense time when it debuts next month, but I'm tempted to buy its shares just on the more realistic issue price.
Stocking up the exchange
Curiously, the decline of Internet stocks coincided with the news that the London Stock Exchange is preparing to launch techMARK, a new market for technology companies, in November. Seen as an attempt to ape some of the success of New York's Nasdaq and the EuroNM (Neuer Markt) on the Continent, it will take over 170 already-listed stocks, that'll keep their existing FTSE index and industry classifications, including all firms in the FTSE International sub-sectors of computer hardware, computer services, Internet (in goes Freeserve), semiconductors, software and telecoms gear.
Eyebrows were raised when Glaxo Wellcome and Smithkline Beecham, certainly not technology stocks, were somehow lumped into this sub-sector, but in the long term, if Internet stocks can't claw back value, then these established giants may prove useful for a market that needs to stay afloat.
Thanks to techMARK doors will open to high-growth firms without the normal three-year trading record, but it requires at least pounds 50m market capitalisation on float and detailed quarterly reports - a positive move towards reporting honest revenue - which most Internet companies are currently loathe to do, given the lack of profit.