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AOL Latin America IPO fizzles

    In a week of 41 IPOs, AOL Latin America's (Nasdaq: AOLA) long-awaited market debut finally arived. But investors weren't eager. Its shares closed up 7/16 to 8 7/16 Tuesday.

    "There are 2 camps on this one," said Kennan Pollack of IPO Central; some think that just because its AOL, its bound to succeed. Others see penetration of a market dominated by established players like Terra (Nasdaq: TRRA) and Star Media (Nasdaq: STRM) as close to impossible. Analysts also say AOL Latin America faces stiff competition in a market where free access providers dominate.

    The joint venture between American Online Inc. (NYSE: AOL) and Venezuelan media giant Cisneros Group, is also one of the week's biggest offerings; its 25 million shares priced at $8 each, the bottom of its $8 to $10 range.

    The deal was cut from an initial plan to offer shares for between $15 and $17. The deal is underwritten by Salomon Smith Barney and Donaldson, Lufkin & Jenrette.

    AOL Latin America is a young player in the booming markets of Brazil and its neighbors. International Data Corp. projects Internet users in Latin America will increase over 41 percent in the next three years to total 29.6 million.

    AOL Latin America began operating in Brazil in November 1999. As of June 25, AOL Latin America had 129,000 subscribers in Brazil, many of which were under free trial subscriptions.

    For the nine months ending March 31, AOL Latin America reported a net loss of $51 million on revenue of $5.2 million. AOL Latin America said 56 percent of its revenue reflected subscription fees attributable to CompuServe Classic subscribers acquired from AOL. It also said it expects these CompuServe revenues to decline significantly.

    The company's financials may also see a dent as it slashes prices to compete with free offerings from dominant players such as Universo Online, or UOL and Terra Networks.

    "We are experiencing higher than expected subscriber cancellations in Brazil, presumably because of the availability of free service," the company said. "Due to this increased competition from free service providers, we have not only lowered our prices but have also substantially increased our advertising spending and our spending for content in an effort to attract more subscribers."

    Various Brazilian banks, including Bradesco and Unibanco, have also begun offering free limited Internet access services in Brazil to their online banking customers. Prodigy (Nasdaq: PRGY) and Yahoo! (Nasdaq: YHOO) are also players.

    In terms of voting power, AOL will control 49.51 percent and the Cisneros Group will control 47.54 percent. AOL and Cisneros could develop competitive services to AOL Latin America.
    • IPO Insider >