MIAMI (05/15/2000) - Investor backlash against Internet companies is affecting online plays focused on Latin America, but this turbulence will eventually be good for the market, speakers said at an event last week.
Companies with a solid business strategy that are able to provide a valuable and unique service will survive the crisis, while copycats will either be acquired or will disappear, speakers said at the Latin American Internet and Technology in the 21st Century conference here.
In the meantime, companies can increase their chances of staying alive by focusing on their core business and cutting costs, speakers said.
"Sit tight and wait until the dust settles," said Emilio Ocampo, managing director and head of the Latin American media, telecom and Internet group at Salomon Smith Barney Inc.
On the negative side, those who invested in companies focused on the region's Internet market are losing money, private equity and venture capital funding has slowed down, and initial public offerings have been put on hold, Ocampo said during a presentation on Friday.
"The Latin American IPO pipeline is closed," he said.
On the positive side, this backlash will "purge speculative elements from the market" and lead to consolidation, Ocampo said. Moreover, private equity and VC financing was high for Latin American Internet plays in the first quarter, which should help some companies weather the current drought, and Internet usage continues to climb in the region, Ocampo said.
StarMedia Network Inc. and El Sitio Inc., two Internet media companies targeting Latin America that went public in 1999, have seen their share price take a dive in recent months. Consequently, a number of Latin America-focused Internet companies that had been expected to launch IPOs (initial public offerings) this year, such as AOL Latin America Inc., Yupi Internet Inc., UOL Inc. and Todito.com Inc., have held off on doing so, Ocampo said. As a matter of fact, there have been no IPOs from Latin American Internet companies so far this year, and having at least one in the coming months would be good for the sector, he added.
The Internet sector that looks more promising in Latin America isn't the portal business but rather the infrastructure business, specifically companies focused on providing broadband services to the region, Ocampo said.
Despite seeing his company's share price drop from US$50 in mid-March to the high teens and low 20s recently, StarMedia Chief Executive Officer and Chairman Fernando Espuelas said the crisis has been beneficial because it's forcing copycats out of the market.
"This is a much better scenario than before," he said during a keynote speech on Friday. "It's a good thing that's happened."
StarMedia has about $250 million in cash, no debt and is on track to turning in a profit by the fourth quarter of 2002, Espuelas said. The company is also targeting the U.S. Hispanic market and Spain, but 90 percent of its users and 75 percent of its employees are in Latin America, he said.
Not getting funding right from the beginning was "the best thing that happened to us," said Manuel Montero, president and chief executive officer of Fiera.com Inc., an online retailer focused on Latin America, during a panel discussion on Friday.
This forced the company to put together a solid business model from the start that focused on having the right selection of products and providing on time delivery, he said. Now, the company has 250 employees and operations in eight countries, Montero said.
To be successful, Latin American Internet companies have to provide content and services that make life easier for their customers, said Greg Keough, chairman of ZonaFinanciera.com Inc., a site that provides personal finance information and services primarily to Latin Americans.
"You have to make consumers' lives better" by saving them time and helping them make informed decisions, Keough said during a panel discussion.
Latin American Internet & Technology in the 21st Century was held on Thursday and Friday and organized by the Strategic Research Institute Inc. More information about the event can be found at http://www.srinstitute.com/conferences/cx/cx301.html/.