2HRS2GO: Secondary too soon for StarMedia

The Terminator must be one of the biggest advisers of tech companies going public nowadays.

How else to explain the continuing trend of firms returning for more so soon after their IPOs? You almost expect to hear it as soon as the first day is over: "We'll be back. And soon."



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StarMedia Network Inc. (Nasdaq: STRM) -- a New York City-based company aiming to be the leading Web portal for Spanish and Portuguese speakers -- became the latest second-timer yesterday when it announced plans for a secondary sale of 6.5 million shares. The stock price is taking a few lumps today, but you shouldn't be too surprised by the new offering, since CEO Fernando Espuelas in an interview back in May did leave the door open for a return to the public trough:

"ZDII: It seems like more companies are going back to the stock market pretty soon after their IPOs, to raise more money. Will StarMedia be considering that?

"Espuelas: This funding that we've just completed will take us through the end of 2000. However, there are always strategic opportunities that we'll look at, and there are always strategic funding opportunities that might be interesting. But right now, especially the day after the IPO ... (laughs)"

He added that StarMedia wouldn't go the Critical Path route and go for a secondary two months after the IPO. Yet four months isn't exactly a long time either.

Some of StarMedia's announcements this week may provide possible reasons why the company needs an injection of $233 million from the capital markets: the StarMedia Broadband division just launched, which presumably takes capital; and the company also began a new Spanish language Web search directory.

But StarMedia's management had to have to those moves planned for months, probably before the IPO itself, so why sell more shares so soon? "General corporate purposes?" If I were an investor, I'd want to more than that.

Why didn't StarMedia just launch a bigger IPO to begin with? I realize that IPO underwriters don't want to flood the market right off the bat, or else you'll kill all your momentum right at the start. But as the highest profile offering in a developing market, StarMedia was so hot four months ago it could have easily doubled its IPO and gotten away with a nice first day pop. As it stands now, investors -- yes, there are some left in the market, believe it or not -- now take a rather heavy dilutive hit not even six months into their holdings.

Seems disrespectful for the stock buyers who took the initial gamble back in May on a company hemorrhaging money. StarMedia owes it to them to come through with something huge once this latest stock sale is finished.

Other issues:

  • Hurricane Floyd
  • You could describe the stock market's attitude as more along the lines of Pink Floyd -- comfortably numb to the situation around it.

    The Big Board will stay open while the rest of the City that Never Sleeps decides to rethink that philosophy, faced with the possibility of 100 mile per hour winds. Picture NYSE board members standing in unison and shaking their fists in defiance of Mother Nature: nothing has the power to stop trading, the market will prevail! Except against federal holidays.

  • China.com Inc.
  • (Nasdaq: CHINA) Speaking of government regulation, this Chinese language portal operator and ISP yesterday tried to stem the fallout from a Beijing official's recent comments on cutting off foreign investment in mainland China's Web firms. China.com took pains to note that it's based in Hong Kong, not the mainland, and the market seems to be responding: shares were up more than 12 percent by midday, after three sessions of declines.

    Any potential Chinese clampdown on outside investors would be deplorable, though hardly surprising given the regime's continuing bent. But I wonder if it isn't also designed to eliminate competition for China.com, which is largely a government mouthpiece, having been spun off from the official news agency, Xinhua. Cutting off foreign investment on the mainland would effectively leave the entire field to China.com, which in turn would become the sole vehicle for investors looking to get into the largest potential Internet market.

    So today's current of optimism (if anyone can truly be optimistic about totalitarian behavior) has some basis to it. But China.com still leaves far too many questions unanswered.

  • Adobe Systems Inc.
  • (Nasdaq: ADBE) The graphics and publishing software vendor's third quarter report is scheduled after market close today. First Call's consensus estimate predicts a profit of 74 cents a share, double from the same period a year earlier.

  • Vignette Corp.
  • (Nasdaq: VIGN), Broadvision Inc. Shares in these Web business developers are falling along with the rest of today's market despite new "buy" ratings from Deutsche Banc Alex Brown analyst Timothy J. Dolan. He joins a growing chorus of cheerleaders for Vignette and the rest of the sector.

    With two hours left in regular trading, the Nasdaq Composite Index was down 21.60 to 2792.57, the S&P 500 lower by 2.96 to 1315.01, and the Dow Jones Industrial Average down 62.69 to 10738.73. 22GO>

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