Terra Networks IPO Shouldn’t Stay Earthbound

For a brief time earlier this year, StarMedia Networks (STRM)
owned the spotlight as the leading Web portal player targeting the Latin
American Internet market, which is expected to more than double (from 15
million to 34 million users) in the next year.

But StarMedia’s stock has faded since its spring ticker debut, as
heavyweights such as America Online Inc. (AOL)
and Yahoo Inc. (YHOO)
have zeroed in on the Spanish- and Portuguese-language markets in Latin
America, Europe and the United States.

Now another company trying to capture these markets is about to ratchet
up the pressure on StarMedia.
Terra Networks, a subsidiary of Spanish telecommunications giant
Telefonica, is slated to go public this week in a $257 million stock
offering led by Goldman Sachs. The proposed Nasdaq ticker symbol is
TRRA, and the 22.3 million shares are expected to be priced between 10
21/32 and 12 7/16.

(The company will make a concurrent offering of shares in Spain designed
to raise $185 million.)

Terra Networks currently provides Internet access to 860,000 customers
in Latin America and Spain. But the key number here is 54 million –
that’s the amount of customers served by Telefonica in Spain, Brazil,
Chile, Guatemala and Peru. Terra is counting on leveraging Telefonica’s
relationship with these customers and its knowledge of those national

In the U.S., the company, which was formed last year and is based in
Madrid, recently launched Internet access service through a partnership
with IDT (ITDC).

Besides offering Internet access, Terra Networks runs Web portals in the
above markets and also offers online advertising and marketing, site
design and Web hosting services. Site traffic has grown from 13 million
monthly visitors in March to 22 million in September, while the number
of paid subscribers jumped from 352,000 through June to 604,000 through
September, a 70% rise.

Revenues last year were $14.2 million, while net loss was $4.4 million.
Through the first half of 1999, sales were $9.8 million, against a net
loss of $25 million.

In addition to its current services, Terra Networks plans to introduce
mobile phone ‘Net access, cable modems, ADSL, satellite and wireless
local loops, as well as video streaming and IP-based voice and fax
messaging. It’s an ambitious agenda, but with net proceeds from the dual
offerings expected to top $364 million, Terra will have a substantial
checkbook to draw from.

While its growing debt may worry some, I expect Terra Networks
relationship with Telefonica, its rapid growth and the desire among
investors to back a winner in the Latin American market will provide
enough fuel to launch an IPO rocket.

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