Freeserve revenue up 36% to £5.15m as user numbers nudge 2 million

Freeserve, Britain's biggest internet service provider, beat expectations yesterday with a big third-quarter revenue increase and fast-growing user numbers.

Revenue for the quarter to January was up 36 per cent to £5.15m, well above analysts' estimates of £4.4m, as advertising sales and e-commerce commissions overtook phone access charges as Freeserve's largest source of revenue. Active users rose to 1.82 million at the quarter's end and hit 1.9 million last Sunday.

That helped Freeserve, which closed up 4p at 590.75p, avoid the fate of most other dot.com and tech stocks, which fell sharply yesterday.

"I don't pass comment on the capital markets," said John Pluthero, Freeserve's chief executive, talking about the recent rout suffered by technology stocks. "The one trend I'm being told a lot about is in the US where investors are becoming quite choosy about the internet stocks they support. They're backing the big players."

Freeserve also announced its biggest acquisition to-date, the £60m all-share buyout of Smartgroups.com, a provider of services to online communities.

Freeserve plans to use the acquisition to promote itself through e-mails in a personalised way. Mr Pluthero couldn't say, however, when Smartgroups would boost Freeserve's cash flow, but observed it should have a positive impact relatively soon. "It's a little difficult to predict how quickly we can build the communities," Mr Pluthero said. "This could explode very quickly or be a little slower burn."

Analysts said Freeserve's share price has upside potential despite its recent fall from over £9, but noted market sentiment remains nervous. "At first sight these are good results, but they are unlikely to shift sentiment, which is fretful," said Miles Saltiel, technology analyst at WestLB Panmure.

New unmetered Net access packages are expected to cost Freeserve £1-£2 a month per user. But finance director Nick Backhouse said the two new packages launched this week are only the beginning. "There is a lot more to come," he said.