Pan-European online auction house QXL Ricardo has unveiled narrower losses for the first three months of 2002, citing a sharp reduction in costs.

The company on Friday said losses fell 47% on the same period last year, helped by a 40% decline in operating expenses.

QXL chief executive Mark Zaleski said QXL had passed "a number of key milestones on the road to profitability," but investors were unconvinced.

In the City, the company's shares were marked 0.15p lower at 0.75p in mid-afternoon trade, down sharply from their all-time high of 744p in March 2000.

Ebay challenge

QXL's programme of integrating and streamlining its various businesses, which has now delivered savings for five consecutive quarters, has won plaudits from analysts.

But investor confidence has been shaken by recent market surveys showing that the company's US-based rival Ebay now attracts more users to its UK site than QXL.

Since buyers and sellers are likely to use the auction site that attracts the highest number of overall users - a phenomenon known as the 'network effect' - Ebay's growing popularity is seen as a serious setback for QXL.

The total value of goods and services sold on the company's sites during the first three months of 2002 fell 10% on the year to �26.8m.

Fighting back

A QXL spokesperson said the decline reflects the growth in the number of individual sellers who are auctioning a range of lower-value items.

She added that the company is fighting back in the battle for market share, pointing to a 23% quarter-on-quarter increase in the number of items sold on its sites.

QXL said it expects some of its 12 European operations to move into profitability during the April to June period.