RealTime IT News

Starmedia Reorganizes

The markets reacted favorably on Thursday to Starmedia Networks Inc.'s announcement last night that it will layoff 15% of its workforce and reorganize its businesses.

New York-based Starmedia opened slightly up this morning to 11 11/16. The price buoyed by a company statement that the cost cuts would allow the Latin American online media giant to break-even by the fourth quarter of 2001 - a year earlier than previously projected.

Under the reorganization, 125 jobs will be eliminated contributing $5 million to $7 million of the estimated $15 million to $20 million in costs the company plans to shave. The remaining savings will come from real estate divestitures and a reduction in duplicate service contracts, according to industry sources.

Fernando Espuelas, Starmedia chairman and chief executive officer, in a release said the announcement was "the culmination of a six month process geared towards creating a more efficient StarMedia." He added that the company would "remain relentlessly focused on reaching profitability even sooner than had been expected," causing speculation in some quarters that more cuts were yet to come.

Espuelas was not available to comment but a spokesperson for Starmedia said the company does not anticipate any more cuts at this time "but we are continually evaluating our operations." She added that the current cuts were to be applied across the company and that Starmedia's substantial operations in Miami will not be disproportionately affected.

A Goldman, Sachs & Co. analyst report released this morning raised concerns that Starmedia will likely need additional financing by late 2001 to fund operations for the following year.

According to the report, Starmedia is currently trading at 7.1 over its 2001 sales estimates, which is comparable to other online portals in the U.S.