Is the profitability tide turning at last?

Last week saw some relatively surprising news amid the standard 'holding pattern` reports that have characterised much of the IT market in weeks gone by; an Ernst & Young study revealed the number of UK companies issuing profit warnings in the first quarter of 2002 reportedly fell to its lowest level for 15 months, and both Lastminute.com and Virgin Mobile have finally turned a profit.

Virgin Mobile`s success appears to lie in the fact that it enjoys an innate understanding of its target market, and more importantly, it delivers exactly what subscribers want.

Basheera Khan, UK correspondent, ITWeb

Virgin Mobile, owned by Sir Richard Branson, has recorded core profits of ₤3.4 million for the first quarter this year, and signed on more than 150 000 new customers, bringing its total customer base to just over 1.6 million. The company hopes to have over 2 million customers and be turning a core profit of more than ₤11 million by the end of 2002.

And even though Virgin Mobile is merely a small fish in a big mobile phone pond, it has succeeded in luring subscribers away from bigger players such as Orange, Vodafone and T-Mobile - although ironically enough, Virgin Mobile is a joint venture between T-Mobile and Virgin.

Its success appears to lie in the fact that it enjoys an innate understanding of its target market, and more importantly, it delivers exactly what subscribers want. So far, this has meant selling heavily branded phones to an acutely image-conscious public, and coupling phones with free line rental for all subscribers; it doesn`t differentiate between those who pay a monthly fee and those who prefer a pay-as-you-go model.

Possibly the best bait to potential new subscribers is the fact that there are no contracts involved, and itemised billing can be provided, free of charge. Oh, and the fact that international calls made from a Virgin Mobile phone to a select handful of countries is generally cheaper than if made from a BT landline.

Not surprising then that the company has managed to position itself as competitively as it has, but one wonders if the success has possibly gone to Virgin Mobile`s head; the company is apparently examining the possibility of making a bid for mm02`s 3G spectrum if the former BT division is bought by Hutichison 3G, which plans to launch its own service later this year.

Good news for Lastminute.com, too. Despite making a pre-tax loss of ₤5.3 million (as it expands throughout Europe), the company broke into profit for the first time in the UK and France.

The success has been attributed to increasing numbers of people booking online in spite of the impact of the events of 11 September on the tourism industry, and the fact that the total value of transactions in the first quarter has grown by 47%, as more consumers grow increasingly confident in online shopping.

The Lastminute group expects to break-even by mid-2003, aided in part by the increased number of flights in its database since its acquisition of rival online travel agency TravelSelect, and by the introduction of new packaging technology later this year.

Lastminute.com gained a certain notoriety after it weathered the dot-com storm thanks to the pots of cash it made during its flotation; the company still has almost lb35 million in the bank, and customers seem to have been tempted back into the fold. This is a far cry from October 2000, when Lastminute.com was voted the UK`s worst travel site by thousands of Daily Telegraph readers.

All in all, it looks like 2002 will see better economic management among companies in the IT sector, if not also improved economic conditions on the whole. Who knows - with confidence in the markets increasing ever so slowly, we may see a slew of new services and even new companies launched this year. With any luck, IT companies` current exercises in treading water may be coming to an end.