Web Auctioneer QXL Posts Smaller Loss, Makes Microsoft Deal

The agreement will make QXL's services available over the software maker's Windows XP operating system and instant messaging service Windows Messenger.

Shares of QXL, the European rival to U.S. online auctioneer eBay (Nasdaq: EBAY), jumped in Europe following the news. On the opposite side of the pond, QXL's American depositary receipts rose US$1.93 to $4.16 in morning trading Friday.

Chief executive officer Jim Rose said QXL has "radically transformed" itself over the past year, consolidating a number of acquisitions, including Germany's Ricardo.de and Sweden's Bidlet.

QXL also has changed its business model so that it carries no inventory and generates revenue from listing and other fees.

Rosy Picture

"During the year, we drove top-line growth, aggressively reduced our costs, despite acquisitions, and continued to develop strategic partnerships and product enhancements," said Rose. "We remain committed to serving our members, illustrated by the announcement of our partnership with Microsoft today offering enhanced auction services via the .NET program."

Meanwhile, QXL chief financial officer Robert Dighero said he expects cash burn to fall over the next year, as the Bidlet and Ricardo acquisitions begin to bear fruit.

Book Review

QXL reported that its gross auction value rose to 31.7 million pounds in the latest quarter, from 24.9 million in the quarter ended in December, with QXL increasing its membership base by 11 percent to 2.9 million people.

The company also said that gross profit rose by 35 percent to 1 million pounds, and that its trading loss -- which excludes extraordinary items -- narrowed to 9.7 million pounds from 12.1 million pounds. QXL did not give comparable figures for the year-earlier period.

Microsoft Deal

The new Microsoft partnership, QXL said, will improve user access to QXL's auction services. According to Rose, the agreement gives QXL "an excellent opportunity to further develop the auction management system through enhanced tools and technology."

Microsoft said the partnership will help its e-commerce plans as well. Neil Holloway, managing director of Microsoft's Europe, Mideast and African operations, said the deal is an "important endorsement for Microsoft's .NET vision."

The companies did not disclose the financial terms of their pact.

Challenges Ahead

QXL said that challenges remain despite the company's strong quarter and current momentum.

"Most significantly, we need to continue the rollout of success, listing and other fee structures," Rose said. Success fees are paid after a sale is completed.

In addition, Rose said that while the new fee-based plan will strengthen results in the future, transactions could drop in the short term after the fees are implemented.

eBay on the Horizon

One of the biggest challenges facing the company is from eBay, which has set its sights on the growing European e-commerce market. In March, eBay launched three international Web sites, setting up in Ireland, Switzerland and New Zealand.

eBay, which began expanding overseas in 1999, has sites in Germany, Austria, Japan, Australia, Italy and Korea, and is also buying France's iBazar. eBay has said its European marketplaces generated more than $137 million in gross merchandise sales in the fourth quarter.