SEC Report:
November 19, 1999
EL SITIO INC (ELSITIO.COM) (LCTO)
S-1 Filing (SEC form S1)
We are an Internet network providing country-specific and regional content for Spanish- and Portuguese-speaking audiences in Latin America and the United States. Recognizing that the countries in the Americas are diverse, we have designed our network to consist of country Websites as well as a global Website. We currently have country Websites for, and sales and content production offices in, Argentina, Brazil, Mexico, the United States and Uruguay. We plan to establish sales and content production offices in Colombia before the end of 1999, and sales and content production offices in Chile and Venezuela during 2000. By offering content and interactive resources designed to be responsive to our users' preferences, we seek to make our network their "home on the Internet" and, in so doing, to create communities of users, develop user loyalty and increase traffic on our Websites. The launch of each country Website represents a potential new community of users. By building substantial communities of users, we are developing a platform for generating revenues from advertising, branded retail dial-up Internet access, or "connectivity", service and, in the future, e-commerce. We recently began to offer connectivity services in Argentina and Brazil and expect to offer similar services in Colombia before the end of 1999. We are also beginning to develop e-commerce services for Spanish- and Portuguese-speaking audiences in Latin America and the United States.
Our founders believed that a scarcity of Spanish- and Portuguese-language content was the principal factor limiting the growth of Internet usage in Latin America. As a result, from our inception in mid-1997, we initially concentrated on the development of a pilot Website for Argentina with quality content and interactive resources in Spanish and, at the same time, carried out extensive market testing to understand users' preferences. We then began to roll-out our network of country Websites during 1998 and, most recently, launched our Website in the United States in September 1999. Our registered users (meaning users who have provided personal information such as name, e-mail address and address) grew from 54,132 persons in June 1998 to 291,567 persons in July 1999. From June 1998 to July 1999, the number of pages viewed by our users increased from 3.0 million to 21.0 million per month. On August 1, 1999, we launched our first mass media-based branding and advertising campaign in Argentina, Brazil, Mexico and Uruguay and, on September 9, 1999, launched the campaign in the United States. In the first three months of this campaign (through October 31, 1999), our registered users increased by approximately 69% to 498,515 at October 31, 1999 and the number of pages viewed per month by our users increased by over 250% to 73.9 million in that month. In March 1999, we also commenced measuring unique visitors (meaning users who visit our Websites multiple times but who are counted in the relevant period as having visited the Websites only one time). The number of unique visitors has increased from 174,800 in March 1999 to approximately 1.6 million in October 1999. We attribute this recent growth principally to our mass media-based branding and advertising campaign, and cannot predict whether such growth will continue.
Our network is located at WWW.ELSITIO.COM for all of our Spanish-language Websites and at WWW.OSITE.COM.BR for our Portuguese-language Website. An on-line user accessing our network in any of the countries for which we operate a country Website is directly linked to our Website for that user's home country; other users are linked to our global Website. Our users encounter appealing content and interactive resources in their native language and organized according to eleven themes, which we call channels. These channels include, among others, movies, music, news, parenting, relationships, shows, sports and technology. Our users also receive access to free e-mail, chat rooms, bulletin boards, personal home pages, contests and prizes. We regularly enhance our Websites' features in response to user suggestions and our own service, content and product developments. We provide content and community features on our Websites to our users (including our registered users) free of charge.
Each of our country Websites is supported by a team of management, marketing, sales and content production personnel based in the relevant country. Each team is responsible for providing country-specific content and community features adapted to the cultural and other tastes of the relevant market. Our in-country teams are supported by our global team, which provides technical and design support and global content for our network. This structure affords our users the dual advantages of, first, the size and resources of our network and, second, the country-specific content and community features most useful to them. Operationally, it permits us to maximize economies of scale to efficiently support multiple markets with differing content and features from a single global platform.
In order to offer our users a broader range of Internet services and to further foster user loyalty, we recently acquired IMPSAT Corporation's retail dial-up access customers in Argentina and Brazil and are in the process of acquiring its retail dial-up access customers in Colombia. The aggregate purchase price for these acquisitions is $21.5 million. As a result of these acquisitions, we expect to receive approximately 73,000 dial-up customers in the three countries. These acquisitions should enable us to utilize our Websites in Argentina, Brazil and Colombia as portals for our dial-up access customers, as our connectivity customers will be directly linked to our Websites upon connecting to the Internet, and to cross-market connectivity services to the users of our network of Websites. To subscribe to our connectivity services, a user pays a monthly fee to us in exchange for connectivity to the Internet. A dial-up access subscriber automatically becomes a registered user of El Sitio's network, although not vice versa. We will not acquire the telecommunications infrastructure required to provide these services, but will instead outsource that infrastructure from third-party providers--initially, under three-year agreements with subsidiaries of IMPSAT Corporation. In conjunction with these acquisitions, IMPSAT Corporation, which is a provider of private networks of integrated data and voice communications systems in a number of countries of Latin America, has become one of our major shareholders. We do not now offer or intend to offer connectivity services in countries other than Argentina, Brazil and Colombia.
Our results of operations for the nine months ended September 30, 1999 reflect that we continue to be in an early stage of operations. We continue to build sales and marketing teams, establish advertising and sales offices, and implement our media-based branding and advertising campaigns. We incurred increased expenses that more than offset revenue growth during the nine months ended September 30, 1999. We recorded net revenues of $1.5 million and a net loss of $13.9 million in the nine months ended September 30, 1999, compared to net revenues of $609,000 and a net loss of $1.8 million in the corresponding period of 1998. Our increased net losses for the nine-month period ended September 30, 1999 were primarily attributable to an increase in personnel and other expenses necessary to support the roll-out or expansion of offices and Websites in Brazil, Mexico and the United States and in anticipation of the launch of commercial operations in these and other countries during the period. For the nine months ended September 30, 1999, El Sitio generated 46.9%, 29.9% and 22.2% of its revenues from Argentina, Uruguay and Mexico, respectively. After taking into account our acquisitions of the three dial-up access businesses, approximately 50% of our revenues in this nine-month period would have been generated from Brazil, 31% from Argentina, 12% from Colombia, 4% from Uruguay and 3% from Mexico.
We were incorporated in July 1997 in the British Virgin Islands. We are a holding company with operating subsidiaries in Argentina, Brazil, Mexico, the United States and Uruguay. Our principal executive offices are located at Avenida Belgrano 845, 1092 Buenos Aires, Argentina, and our telephone number is 011-5411-4343-6700.
OUR MARKET OPPORTUNITY
The Spanish- and Portuguese-speaking audiences in Latin America and the United States together represent one of the fastest growing user groups on the Web today. While we do not expect to have country Websites or operations for every country in Latin America, our network is targeted to the entire Latin American region. In the United States, we are currently targeting the Spanish-speaking populations in Chicago, Houston, Los Angeles, Miami, New York, San Antonio and San Diego. We are primarily targeting individual users, although we anticipate that business and other entities will become important participants in our communities of users.
We believe a large and growing market consisting of Spanish- and Portuguese-speaking audiences exists in Latin America and the United States for content, connectivity and e-commerce services, and that this market presents us with a significant opportunity. Latin America had a total population at the end of 1998 of 492.4 million people, of whom more than two-thirds are under 35 years of age. The region had an aggregate gross domestic product in 1998 of $2.0 trillion, of which Brazil, Mexico and Argentina accounted for more than three-fourths. The wealthiest 20% of the Latin American population accounts for approximately two-thirds of the overall buying power in the region and constitutes our primary target market in Latin America. Internet use in Latin America is expected to increase from an estimated 4.8 million users in 1998 to 19.1 million users in 2003. Internet advertising targeting Latin America is projected to grow from approximately $23.6 million in 1998 to approximately $948.9 million in 2003. Similarly, on-line sales in Latin America are projected to increase from approximately $166.8 million in 1998 to approximately $8.0 billion in 2003. As of May 1999, Internet penetration rates were 1.5% in Argentina, 2.0% in Brazil, 6.0% in Colombia, 1.0% in Mexico and 2.9% in Chile.
The United States has a total Hispanic population of approximately 31.4 million people, which has grown at a compound annual rate of 3.7% between 1996 and 1999. By 2000, the U.S. Hispanic population is expected to constitute approximately 11% of the total U.S. population. Advertising targeting U.S. Hispanics was $1.7 billion in 1998. As of January 1, 1998, U.S. Hispanics represented $273.2 billion in annual buying power. As of May 1999, the Internet penetration rate for the U.S. Hispanics was approximately 19.0%.
OUR STRATEGY
Our goal is to become the leading Internet network for Spanish- and Portuguese-speaking audiences in Latin America and the United States. To achieve our goal, and to take advantage of our market opportunity, we continue to implement a strategy consisting of the following principal elements:
- BUILDING A MARKET-LEADING NETWORK. We seek to build a leading Internet
network by:
V further developing country-specific and regional content;
V incorporating additional community-building features; and
V strengthening our brand identity.
- GENERATING REVENUES FROM OUR NETWORK. We seek to increase substantially
revenues from our network by:
V forging one-on-one relationships with advertisers;
V integrating connectivity services into our network; and
V developing our e-commerce business.
- LEVERAGING STRATEGIC RELATIONSHIPS. We intend to leverage our existing
relationships with shareholders and enter into new strategic relationships
to expand our network and enhance our content, marketing and sales.
OUR SHAREHOLDERS
Roberto Vivo-Chaneton, our chairman, and Roberto Cibrian-Campoy, our chief executive officer, founded our company in 1997. Mr. Vivo is a co-founder and deputy chief executive officer of IMPSAT Corporation. Mr. Cibrian was the founder and the president of Cibrian-Campoy Creativos, S.A., an Argentine company which engaged in electronic arts, computer animation and multimedia and which was the predecessor entity for our Argentine subsidiary.
In July 1999, we completed a private placement of 6,334,004 Class A convertible preferred shares for a gross purchase price of $44.4 million, consisting of 5,477,088 shares sold for $38.4 million in cash and 856,916 shares to be issued on a quarterly basis through January 2001 in exchange for $6.0 million in non-cash advertising time credits. Each Class A convertible preferred share will, after giving effect to a 2-for-1 share split, convert automatically into two common shares upon completion of this offering.
Our principal shareholders, in addition to Mr. Vivo and Mr. Cibrian,
include:
- IAMP (El Sitio) Investments Ltd., an investment fund jointly controlled by
Hicks, Muse, Tate & Furst Incorporated and the Cisneros Group of
Companies;
- SLI.Com, an investment fund controlled by Guillermo Liberman, an Argentine
entrepreneur with interests in agribusiness, fisheries, telecommunications
and hotel development;
- GCC Investments, LLC, an indirect subsidiary of GC Companies Inc., which
owns and operates General Cinema Theatres; and
- IMPSAT Corporation, a Latin American telecommunications company.
In mid-November 1999, we completed a private placement of 1,111,111 Class B convertible preferred shares for a purchase price of $10.0 million in cash, or $9.00 per Class B convertible preferred share. Purchasers of the Class B convertible preferred shares consisted of Intel Atlantic, Inc., a subsidiary of Intel Corporation, and Latinvest Asset Management do Brasil, Ltda., an affiliate of Globalvest Management Company, L.P. The Class B convertible preferred shares have an annual dividend rate of 8%. Each Class B convertible preferred share will automatically convert, on the date six months after the closing of this offering, into one common share. The difference between the initial public offering price per common share and $9.00 price per Class B convertible preferred share will be amortized as a deemed dividend during the same six-month period. |
