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Cha Cha AOL-LA

Larry Dignan AnchorDesk

Published: 02 Aug 2000 10:55 BST

AOL and AOL-LA are separate companies. An investment in AOL-LA is not an investment in AOL, nor is AOL's investment in AOL-LA a recommendation for you to buy shares of AOL-LA's class A common stock, the company noted in its regulatory filings.

Folks, they aren't kidding. Of course, that fact won't stop investors from going crazy for AOL-LA shares. AOL-LA (proposed ticker: AOLA) is expected to price 25 million shares at $15 to $17. The deal, underwritten by Salomon Smith Barney, is likely to be this week's initial public offering headliner.

AOL-LA, which is jointly owned by AOL and the Cisneros Group of Companies, is AOL's entry into the booming markets of Brazil and its neighbors. International Data Corp. projects the number of Internet users in Latin America will increase at a compound annual rate of 41 percent over the next three years to 29.6 million.

With those stats, it's not surprising that Latin America is already staked out by StarMedia Network (Nasdaq: STRM), among others. Given the success of AOL-LA's namesake, you can reasonably expect strong Wall Street interest.

Is it worth it though?

For starters, AOL-LA is young. Very young. It began offering interactive services in Brazil in November 1999. As of June 25, the company had 129,000 subscribers in Brazil, and many were under free trial subscriptions. The company plans to offer services in Mexico and Argentina this quarter, and then target other countries on the continent.

For the nine months ended March 31, AOL-LA reported a net loss of $51 million on revenue of $5.2 million. The company says 56 percent of its revenue reflected subscription fees attributable to its CompuServe Classic subscribers acquired from AOL. "We expect these CompuServe revenues to decline significantly," the company says.

And then there's the little issue of competition. AOL-LA, which doesn't have the head start its namesake had, will derive most of its revenue from subscriptions. It's a shame many folks in Latin America can get free access. Universo Online, one of Brazil's largest Internet service providers, and Terra Networks offer free access services as well as billable plans in Brazil.

In addition, various Brazilian banks, including Bradesco and Unibanco, offer free limited Internet access services in Brazil to their online banking customers. Prodigy (Nasdaq: PRGY) and Yahoo! (Nasdaq: YHOO) are also players.

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