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Another Week, Another E-Mail IPO

What's with all the e-mail IPOs lately? In the past month alone we've seen Juno Online and Mail.com file to go public, while Critical Path launched its IPO March 29. They are joined this week by USA.NET, another advertiser-based electronic messaging services company that's losing a good bit of money, but sees profit in a market projected to be huge.

Unlike Juno Online, which began as a free e-mail provider and now wants to be an ISP, USA.NET began (in 1991) as an ISP and wants to be an e-mail provider.

Based in Colorado Springs, Colo., USA.NET hopes to raise $100 million with its IPO. Lead underwriter is Bear Stearns; Nasdaq ticker symbol will be MBOX.

USA.NET serves a mix of consumer and business accounts. Its NET@DDRESS service has signed up 6.7 million individuals to receive some free Web-based e-mail along with their ads. The company also hosts commercial Web-based mailboxes for Web portals and corporate accounts, and offers e-mail management for businesses.

The company's real bet is that it can carve out a niche as an e-mail services outsourcer. The problem is that nearly all of USA.NET's current non-consumer business comes from the 2.7 million mailboxes it manages for Netscape's Netcenter.

Netcenter remains a blue-chip Web portal, despite Netscape's demise, but the sign in front of the site says "under new management," and AOL may choose not to renew the Netcenter agreement with USA.NET after it expires in June 2000.

Since Netcenter comprised 30% of USA.NET's $4.7 million gross revenue last year, its loss would be huge if the e-mailer can't broaden that revenue base. Especially if its biggest advertiser, Egghead.com, decides to walk. Egghead ad dollars made up 27% of USA.NET's total revenue last year, up from 18% in '97. Again, one large client equals one large risk.

Like the other e-mail companies with recent IPOs, USA.NET is losing money. Net loss mushroomed from $5.7 million in 1997 to $19.2 million last year. Accumulated deficit through 1998 was $28.6 million.

This isn't the biggest of the recent e-mail IPO plays - Critical Path's offering amount was $108 million - but it's more ambitious than Mail.com's ($57.5 million) and Juno's ($86.35 million). For investors, the key isn't whether USA.NET loses Netcenter or Egghead.com, but whether it can eventually reach the point where it wouldn't really matter.