World Awaits WorldGate IPO

Though it’s taking longer than many people expected, the Internet and
television are moving toward a day when they will be inextricably linked
and dependent on each other.

For they are the two most important mass communications mediums of our
lifetime, which, rather than setting them up as competitors, actually
makes them better suited to complement each other. What that means, of
course, is opportunity, especially for companies that are the early
leaders in helping to forge this technological union.

One such company is WorldGate Communications, which provides cable
television subscribers Internet access through set-top boxes connected
to their televisions. Based in Bensalem, Pa., WorldGate is expected to
go public this week. The company hopes to raise $58.5 million through
the sale of 4.5 million shares at $12 to $14 each under the Nasdaq
ticker symbol WGAT.

WorldGate offers something that is in high demand in the
modem-restricted world of cyberspace – fast Internet access.
It also offers a truly unique technique for integrating the
interactivity of the Internet with television content. Channel
Hyperlinking enables a viewer watching a participating television show
or commercial to link to a related Web site at 128 kilobits per second, twice the
speed of the fastest modem now available.

(While that might not sound like much, it’s vastly superior to merely
flashing a URL at the bottom of the screen, or turning over the newscast
to the network’s “Internet reporter,” who reads a couple of e-mails from
viewers in Peoria.)

Being an early leader in a potentially huge market seemingly puts
WorldGate in a great position. But the company is deep in a hole –
though it was founded in 1995, aggregrate revenues through last year
were only $1.2 million, while accumulated deficit was $51.9 million.
Further, it finds itself dealing not with Hollywood and glamorous
network executives, but with cable operators. WorldGate is dependent to
a large degree on marketing support from this distinct and often
difficult breed. And the company also must rely on set-top box
manufacturers to include WorldGate access.

On the competition front, while WorldGate may in the first wave of
television-Internet companies, it is considerably behind @Home, which
has exclusive deals with big cable players such as Cablevision, Comcast
and Cox Enterprises.

WorldGate also is using a lesser-known lead underwriter, Gerard Klauer
Mattison, which some analysts think might act as a drag on the IPO.
Several IPOs headed by non-marquee underwriters have performed well in
recent months, though none have achieved the altitudes of companies such
as @Home, which nearly two years ago offered shares to investors at
$10.50 each, and which closed yesterday at almost $190 a share.
This doesn’t make WorldGate a bad bet; it just means investors shouldn’t
expect a first-day moonshot.

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