StarMedia Tops Analyst Expectations in Q1

FORT LAUDERDALE, FLA. (04/11/2000) - StarMedia Network Inc., the Latin America-focused Internet company whose shares took a dive in March and haven't recovered, wowed analysts today with its first-quarter financial results.

The company, which operates a variety of Web sites and portals aimed at Spanish- and Portuguese-speakers worldwide but primarily in Latin America, closed the quarter with revenue of US$10.1 million, a 531 percent increase compared with revenue of $1.6 million in the first quarter of 1999. Page views and e-mail accounts also rose sharply in the first quarter of 2000, ended March 31, 2000.

"We continue to grow in all our key metrics," said Fernando Espuelas, the company's chairman and chief executive officer, during a conference call with analysts this afternoon.

StarMedia reported a net loss for the first quarter of 2000 of $35.1 million, or 54 cents per share, a smaller loss than the 64 cents per share expected by seven analysts polled by First Call/Thomson Financial. The company had a net loss of $15.6 million, or 35 cents per share, in the first quarter of 1999.

"We're focused like a laser beam on achieving profitability by the end of 2002," Espuelas said. StarMedia believes it could very well become profitable earlier than that, in the third quarter of 2002, Espuelas said during an interview later.

During the conference call, all the analysts who asked questions -- about six of them -- congratulated Espuelas on the company's good first-quarter results.

Still, StarMedia, considered a pioneer in Latin America's Internet market, has seen its shares plunge from a healthy $50 per share on March 10, 2000, to a close of $25.5 per share today, up 50 cents from yesterday's close.

The stock slide began on March 13, when Salomon Smith Barney Inc. and Merrill Lynch & Co. downgraded StarMedia, which went public in May 1999 and is listed on the Nasdaq Stock Exchange. The downgrades were in part a response to StarMedia's announcement that the company would increase its marketing spending for the first half of the year. [See "UPDATE - StarMedia's Shares Plunge on Analyst Downgrades," March 13.]"To be honest with you, I gave up trying to understand the (movements of the) market a long time ago. The market is very inefficient in the short term and brutally efficient in the long term. Our goal is to move towards profitability.

I don't know what will happen tomorrow. Tomorrow, we're back to focusing on our business," Espuelas said, when asked whether he hopes today's strong report will push back up the value of StarMedia's shares.

StarMedia had 2.1 billion page views in the first quarter of 2000, an increase of 1,492 percent over the first quarter of 1999, while active e-mail accounts grew 670 percent to 3.3 million in the quarter, compared with the first quarter of 1999, the company said.

Espuelas said that StarMedia's page view count is audited by ABC Interactive, and, as he has done in the past, he decried the absence of a common measurement standard among Internet companies in Latin America. Until market players are measured by a company like ABC Interactive, it will be impossible to carry out apples-to-apples comparisons between Net firms, Espuelas said. [See "Interview:

Espuelas: StarMedia Leads LatAm Portal Market," March 24.]About 85 to 90 percent of StarMedia's first-quarter revenue came from advertising sales, said Steve Heller, the company's chief financial officer, during today's conference call. About 14 percent of the quarter's revenue came from barter deals, down from 24 percent in the fourth quarter of 1999. The company plans barter deals to account for less than 10 percent of revenue by the fourth quarter of 2000.

StarMedia also intends to continue strengthening its presence in individual markets in the coming months with acquisitions of online city guides and local sites, something the company began doing last year and continued doing in the first quarter of 2000, Espuelas said.

"We want to be a leader in local portals," he said.

StarMedia's strongest market has traditionally been, and continues to be, México, followed by Brazil, Espuelas said. The company has experienced significant growth among U.S. Hispanics recently. The company is also particularly strong in Argentina and Colombia, he added.

Founded in 1996, StarMedia had Latin America's horizontal portal market pretty much all to itself until last year, when cocky startups and established players began arriving and turning the market into a more competitive and crowded space.

Some of the heavy hitters now present in this market are Microsoft Corp., Yahoo Inc., Lycos Inc., Brazil's UOL Inc., America Online Inc., Spain's Telefónica SA and Brazil's Organicaoes Globo. Startups include El Sitio Inc. and Yupi Internet Inc.

Significant growth is expected in Latin America's Internet market in the coming years. The number of users is expected to grow from 10.6 million in 1999 to 66.6 million in 2005, and B2C (business-to-consumer) e-commerce transactions are expected to rise from $194 million in 1999 to $8.3 billion in 2005, according to Jupiter Communications Inc., a market research company, based in New York.

Some notable deals closed by StarMedia during the first quarter include:

-- An agreement with PSINet Inc. to launch a co-branded portal-- An alliance with Juno Online Services Inc. to provide Spanish-language Internet access services in the U.S.

-- The creation of a free ISP (Internet service provider) for Latin America called Gratis1, in which StarMedia holds a minority stake and whose backers include CMGI Inc., 1stUp.com, Chase Capital Partners and Flatiron Partners-- Wireless deals with several cellular carriers in Latin America and with L.M.

Ericsson Telephone Co., all to deliver StarMedia content and services to wireless usersStarMedia, based in New York City, is at http://www.starmedia.com/.

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