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 [email protected]
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.

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