The company raised $200 million through the sale of 25 million shares at $8 each this afternoon, the bottom of the $8-$10 pricing range. Last week, the range was reduced from $15 to $17.
Analysts and investors say one of AOL Latin America's greatest challenges is signing up paying subscribers despite the growing popularity of free Internet services. In addition, advertising revenue could be tight considering that a relatively small number of Latin American companies advertise online.
"The majority (of the population) is still poor. That's one of the reasons there's been a shift to free ISP service," Bluestone Capital Internet analyst Kathleen Heaney said. "If AOL wants someone to pay, they're going to have to have a lot of stuff on their site to get people in there."
Latin American ISPs and Internet portals also are struggling to win the trust of advertisers. Currently, 60 percent to 70 percent of all online advertisers in Brazil are other dot-coms, according to a report by Goldman Sachs analysts Chris Hussey and Maria Gonzales.
"Critical to the long-term development of viable media-based Internet models in the region, in our opinion, is the presence of offline companies advertising online," the report said.
Although Latin America is considered an emerging market, a lagging telephone infrastructure will curtail growth. At the end of 1999, just 2 percent of Latin Americans were online. That number is expected to reach 12 percent by 2005, according to a study by Jupiter Communications. In addition, only 4 percent of Latin American households own a computer, a figure that is expected to reach 13 percent by 2005, the study said.
"It's always been an issue; the telephone infrastructure is still not perfect," said Heaney. "That's why there's a huge penetration of cell phones, because sometimes there can be a huge wait for phone service."
In the nine months ended March 31, 2000, AOL Latin America reported a net loss of $51.2 million, nearly 10 times more than its $5.2 million in revenue.
In its prospectus filed with the Securities and Exchange Commission, the company explained that it offers most customers a free 90-day trial period. As a result, many subscribers have yet to pay for their service, cutting into the company's revenues.
Competitors in the region include StarMedia, Ultima Online, El Sitio, Yahoo Latin America, Lycos Latin America, Yupi and eHola.
America Online Latin America will begin public trading on the Nasdaq tomorrow under the ticker symbol "AOLA." Salomon Smith Barney was the lead manager for the sale.