Lastminute.com provides an IPO acid test

2000-02-14

Almost a year after the company initially revealed its intentions to float on the stock market, Lastminute.com announced at the end of last week that it would be floated on the Sock Exchange and the NASDAQ some time next month.

The company is valued at around £400 million. The question is, is it worth it? As with all Internet IPOs, nobody really knows the answer. However the mutterings that IPOs are overvalued have become a chatter. A couple of weeks ago, the Financial Times reported that speculators were unsure about whether the company would achieve this valuation when the time came. Unfortunately for Lastminute.com, the only real test of IPO success is to just do it and see. The company has one chance: it may succeed, and then again it may succeed less well.

There are three kinds of Internet IPO.

• The first is for companies that provide the fabric of eCommerce – such as CyberTrust and CommerceOne.

• Second, we have Web businesses – such as Amazon, BlackStar, TicketMaster and Lastminute, who use the Internet as a direct revenue stream.

• Third we have the accumulators of potential revenue – Portal sites such as Freeserve and Yahoo!, who grow their eyeball business prior to exploiting their subscription base for profit.

Of the three, the fabric providers are most likely to succeed as they are the most tangible, making a profit whether their customers – the other providers – succeed or fail. Least optimistic is the third category, who may be unclear about how to turn potential into revenue (hence the difficulties suffered by Freeserver last year). Lastminute.com sits in the middle category: the chances are that the company will turn a profit, the questions are how much, when and who are the competition.

Unfortunately for Lastminute.com, competition is the one thing of which there is no shortage. Travel is a land of huge opportunity for me-too companies, which differentiate themselves on the scale and the level of the service offered. A recent contender, for example, is LateRooms.com, which claims to have 1500 hotels signed up to its site. Travel sites in general are subject to the vagaries of the online consumer – the competition really is only a click away. Customers will vote with their feet – my own experience a few months ago is that, whilst the offers on Lastminute.com were good, the breadth of choice was not. This may have changed but remains an indication of the rocky road to be travelled by a online bookings company attempting IPO.

(First published 14 February 2000)