America Online Latin America successfully launched its initial
public offering this afternoon, after postponing the share sale last week
and lowering the price because of tepid demand.
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
"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
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