StarMedia slides after unveiling cost-cutting plans

2 min read

StarMedia Network shares fell $1.50 to $10 Thursday, one day after the Latin America portal announced it would cut 125 jobs and take a $4 million charge this quarter.

StarMedia (Nasdaq: STRM) said its third quarter results would include a one-time charge ranging between $2 million and $4 million to pay for the move.

The cost-cutting move will help the company reach operating profits in the fourth quarter of fiscal 2001, StarMedia said. Analyst consensus currently predicts losses for StarMedia through 2001, and the company had long told Wall Street to expect operating earnings in the fourth quarter of fiscal 2002.

However, company executives in recent months have been saying StarMedia could reach profitability faster.

On Thursday, CS First Boston analyst Will Landers reiterated his "buy" recommendation on the stock, saying the company's plan to further tighten costs was a positive and that the reorganization could provide some further support for the stock.

Goldman Sachs lowered its fiscal 2000 earnings estimate to a loss of $2.34 a share from a loss of $2.30 a share. It maintains a "market outperform" rating.

Wednesday's announcement comes as StarMedia integrates 10 acquisitions made over the past year. The layoffs and other cost-cutting moves will lower the company's anuual expenses by $15 million to $20 million in 2001, the company said.

"Today's announcement is the culmination of a six month process geared towards creating a more efficient StarMedia," said Fernando Espuelas, chairman and CEO. "The fundamentals of the business are sound and our strategy has not changed."

Internet stock prices generally have fallen since the spring as Wall Street focuses on profits. Since reaching an all-time closing high of 53.25 in early March, shares of Starmedia have lost more than 78 percent of their value.

On Wednesday, Lehman Bros. analyst Michael Simpson started coverage of StarMedia with a "buy" rating and a 12-month price target of $17.50.>