StarMedia: South of the Internet Border

On Wednesday, StarMedia reported its financials, showing yet again that the
company is building itself into a dominant portal for Latin America.

For the quarter, revenues shot to $5.62 million, up from $1.65 million in the
same quarter a year ago. There were 1.17 billion page views during the
quarter, which is a 71 percent increase from the previous quarter and makes
StarMedia the most trafficked hub in Latin America.

With its momentum and strong community, StarMedia has an opportunity to be
the Yahoo! of Latin America. Accelerating the building process, StarMedia
has aggressively pursued a mergers and acquisitions strategy, snapping-up
leading Latin American sites like Zeke and Latin Red.

But StarMedia will
not smother these sites by changing their name; rather, the sites will keep
their brands intact. In other words, StarMedia is positioning itself to
have a variety of top brands in Latin America.

As the network grows, StarMedia will have many more partnership
opportunities, which should help fuel growth, as well as the stock price.
A key partnership was with AT&T global Network Services.

In this deal,
AT&T will provide the back-end ISP services (network capacity management,
billing, dial-up access) and StarMedia will be the default portal. Both
companies will market the service throughout Latin America and have a
revenue split. With this partnership, StarMedia will have a recurring
revenue stream that should grow rapidly.

So far, StarMedia relies on Internet advertising. This makes sense, as the
Latin market is still in the development stage and users are not accustomed
to e-commerce — not yet, anyway. However, the growth of Internet
advertising is strong. Internet ad revenues in Latin America are expected
to grow from $51 million in 1999 to $1.6 billion by 2004 — with the two
biggest markets being Brazil and Mexico.

But the future for StarMedia is e-commerce. According to IDC, e-commerce
revenues in Latin America are expected to surge from $300 million in 1998
to $8 billion by 2003. In fact, 29 percent of StarMedia users have already made
purchases online and 59 percent are expected to make purchases in the near future.

In September, StarMedia entered a comprehensive agreement with
Hewlett-Packard to provide e-commerce solutions to merchants within Latin
America. With the technology, merchants can set-up shop within 24 hours.

There are also opportunities for wireless. For example, StarMedia
acquired PageCell International Holdings, which will allow StarMedia to
deliver its content on wireless devices, such as cell phones, pagers and
personal digital assistants.

The mobile market has been explosive in Latin
America. According to Pyramid Research, the market for wireless devices in
Latin America has increased from 12.2 million subscribers in 1997 to 19.5
million by the end of 1998.

StarMedia even has a broadband division. To build this, the company
purchased Webcast Solutions, to provide streaming media.

StarMedia wants to provide the complete solution for Latin America —
e-commerce, wireless and broadband. This is definitely smart. However,
the big risk is not being able to manage the complexity of this plan.

But
the company has been bolstering its management team, such as by
hiring Gary Bonilla-Latoni, who was the vice president of Saatchi & Saatchi’s Internet
in Latin America.
So assuming management is up to the task — and so far they have been —
StarMedia’s star should continue to shine.


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