dcsimg
RealTime IT News

AOL Latin America: Down South

Of course, America Online is more than America. In a sense, the company wants to be World Online. To satisfy its global ambitions, this week AOL launched the IPO of AOL Latin America (let's call it AOLA for short). In the IPO, AOLA raised about $200 million.

Unfortunately, the aftermarket performance was quite lackluster. On its first day of trading, the stock was up a mere 7/16 to 8-7/16.

Keep in mind, the original price range of the IPO was $15-$17. The lead underwriter, Salomon Smith Barney, then slashed the price range to $8-$10. What's more, two new investment banks were added to the underwriter's list (Prudential and Cazenove). There was also a delay of the IPO. In other words, investors had very little interest swallowing 25 million shares of AOLA. Interestingly enough, right before the IPO, the Cisneros Group and AOL came in to purchase 8 million shares.

Now, this is not to imply that AOLA is a troubled company. Actually, the company's strategic backers will provide many advantages. AOL will help to not only provide strong brand recognition, but also help with infrastructure. As for the Cisneros Group, it will help with regional issues in Latin America (the Cisneros Group is a leading media company in Latin America).

Basically, AOLA will offer an AOL-style subscription online service to the big market segments: Brazil, Mexico, and Argentina. AOLA launched its services in Brazil in November, 1999 and Mexico in July 2000. The Argentina service is expected soon.

So why are investors nervous? First of all, while the Internet market in Latin America is growing strong, it is nonetheless small. Thus, expect AOLA to sustain losses for quite awhile. For example, for the nine months ended March 31, 2000, losses were $51.2 million. Sales were a pittance: $5.2 million.

Next, the regulatory environment in Latin America is suffocating. Local phone calls are charged on a minute-by-minute basis. Moreover, credit card billing is a new thing in Latin America. In fact, about 22% of AOLA accounts are past due.

Finally, the competition is intense. Competitors include Star Media, Terra Networks, El Sitio, Telmex and so on.

In view of all this, it is no surprise that investors stayed away. And, it should not be surprising that this will continue, putting further pressure on the stock price. AOLA will likely be a stock that is out-of-favor for some time.