LONDON -- For all of

QXL's

(QXLC)

progress -- much of which was on display when the company reported full-year results Wednesday -- it still faces one giant problem: It's not

eBay

(EBAY) - Get Report

.

True, in Europe alone, QXL, thanks to three acquisitions this year, now outranks its American rival when it comes to registered users. QXL runs 11 Web sites on the Continent, against eBay's two (in the U.K. and Germany). And QXL's technology is considered one of the more advanced platforms for offering tricky multilingual and multicurrency services. Moreover, QXL appears to be on the way to breaking even a year ahead of schedule, news that should delight profit-conscious tech investors.

But analysts and investors say eBay still boasts vast advantages over QXL that will keep the British company an also-ran. Namely, eBay, with 12.6 million customers worldwide, has proven that its brand name transfers easily from one country to another. And while eBay's European operations, for which it declines to break out figures, is widely believed to be losing money, on the whole eBay has been solidly in the black for some time.

In many respects, QXL's fate depends on whether it can match eBay's results in these crucial areas. For now, QXL is still unsure how to brand its product across Europe. And although it has succeeded in attracting more customers than eBay has on the Continent, it's selling them fewer goods.

Where the Money Is

The size of the European online auction market is expected to match or exceed that of the U.S., where

Jupiter Communications

expects aggregate consumer-to-consumer and business-to-consumer online auctions to balloon to $26.6 billion by 2004, up from just more than $3 billion in 1999.

Extending Their Reach
How QXL and eBay stack up by market

Source: MMXI Europe; all data as of March 2000

In its land grab for a piece of that action, QXL has been snapping up local rivals. Acquisitions of

Jubii Auktion

of Denmark,

Bidlet

of Sweden and

ricardo.de

of Germany now place QXL's registered users at 1.5 million. That exceeds the 966,000 registered users eBay has in Europe, according to estimates by Peter Misek, an analyst with

Chase H&Q

.

"If QXL is to maintain its lead against eBay, that means building as many users as possible without increasing customer acquisition costs," says Misek, who rates QXL a buy. (His firm hasn't performed underwriting for the company.)

So far those costs have been falling. In the most recent quarter, acquisition costs averaged 25 pounds ($37) per customer. QXL Chief Financial Officer Robert Dighero says QXL will drive those costs down to around 15 pounds within the next 12 months.

Tough Comparisons

That all sounds great until held up against eBay. The $13 that it costs eBay to acquire a new customer buys it far higher sales. eBay's gross auction value -- all the stuff sold on the site -- in Europe is more than twice what QXL generates. And that's the statistic people should pay attention to because it shows how active its registered users are, says Steve Westly, eBay's senior vice president of international operations.

One way in which QXL hopes to boost the value of transactions completed on its site is by taking a page from eBay's book, Dighero says. In that regard, it's trying to break down its auctions into more manageable subcategories to make the site easier to use. "That's something eBay has done really well," Dighero notes.

Down for the Count?
QXL shares remain well off their peak

Source: BigCharts

Then there's the issue of branding, in which eBay's easily recognizable name gives the San Jose, Calif.-based company another huge advantage. It's allowed eBay to pursue a clear marketing message even when it buys its way into new markets. For instance, eBay entered Germany last year when it bought alando.de, and quickly recast the subsidiary's Web site under its own name.

"eBay is the daddy of this category," says Martyn Straw, president of the U.S. arm of international brand consultant

Interbrand

.

By contrast, every time QXL expands into a new country it has to build name awareness from scratch. "The average Internet user won't know it," Dighero admits.

A Lot in a Name

Aside from being costly, this is leading to some confusion about how QXL should integrate its recent acquisitions. Both Bidlet and ricardo.de have better brand awareness than QXL in their home markets. If QXL replaces the local brands with its own less well-known name, it runs the risk of alienating customers. A brand name "is an asset and if we choose to move away from that asset, we would want to do it carefully," Dighero says, adding that a task force is examining the issue and is expected to reach a conclusion before the ricardo acquisition closes in late August.

Ultimately, one brand name is preferable, says David Jago, editorial director of

Mintel

, a market research firm based in the U.K. (Mintel hasn't provided consulting services to either QXL or eBay.) In that regard, "eBay has an advantage, because it's a more easily translatable name. QXL doesn't trip off the tongue."

Not all is lost for QXL, which Wednesday reported operating losses for the 12 months ended March 31 of 32.8 million pounds, compared with 2.1 million pounds a year ago. Revenue jumped 170% to 6.9 million pounds. And Chief Executive Jim Rose offered some hope on the issue of profits when he told analysts that the company could push into the black by 2003, a year earlier than expected.

QXL's shares rallied Wednesday on the news that fourth-quarter operating losses narrowed to 11.1 million pounds from 11.4 million pounds in the third quarter. But the stock remains battered along with that of others in the Internet sector, having lost more than 90% of its peak value. Thursday the shares changed hands around 9, well off their 52-week-high of 117 3/8.

To ensure that QXL remains on the bidding side of the auction block, it must sort out these issues before eBay, which is eyeing France and Italy, raises the stakes in its own back yard.