It certainly will be a struggle for them to get the IPO off. Interesting take from RedHerring.com:
redherring.com
Altavista has a view to a new high
By Stephen Lacey
Redherring.com, September 29, 2000
False-start IPO plans, seemingly annual restructurings, and changing investor landscapes has
made Altavista more of a high-plains drifter than a traveler of the lofty elevations its name
implies. But that reputation may mean investors just won't warm up to an IPO, which in turn
clouds the prospects of Altavista's majority owner, CMGI (Nasdaq: CMGI).
"You don't want to be perceived as a wounded horse out of the gate," says John Corcoran,
Internet/digital new media analyst at CIBC World Markets.
Nevertheless, executives at the big search engine-cum-portal hope layoffs will lead to profits
and then a successful visit to the public markets before February 2001. After conceding defeat
to portal giants Yahoo (Nasdaq: YHOO) and America Online (NYSE: AOL) as part of its latest
restructuring -- amounting to its second round of layoffs in the past five months -- Altavista is
banking on a return to its roots to make it more appealing to investors.
The month after bowing out of its April IPO attempt, it launched a slimmed-down search engine,
Raging Search. To support its international expansion -- Altavista has a presence in 17
countries, and it intends to target a total of three dozen by the middle of next year -- the
company relaunched its Babel Fish translation service in June. Phil Leigh, an analyst at Raymond
James who follows CMGI's operations, also notes that Altavista's library of music and videos give
it a competitive advantage.
JEKYLL OR HYDE?
While its streamlined look may help Altavista turn a profit -- the latest restructuring is expected
to save about $20 million annually -- it won't isolate it from competition. Ultimately, the shift
may confuse its user base and lend to investor doubt.
"Either strategy [portal or search engine] is going to be challenging," says Susan Walker White,
Internet and new media analyst at J.P. Morgan. "From a user's perspective, it's been hard for
Altavista to establish an identity -- there wasn't enough to differentiate them."
A search engine strategy places it in direct competition with companies like Ask Jeeves (Nasdaq:
ASKJ) and its Direct Hit subsidiary, and Google, a privately-held company that's the engine
behind Yahoo's site. Already a key to Altavista's current business model, additional licensing of
its search technologies would put the company in further competition with Inktomi (Nasdaq:
INKT).
And, important to the page views that drive advertising revenue, portals like AOL and Yahoo are
able to keep users within their network. Search engines lack that ability, Ms. Walker points out.
Whether reducing operating costs and transitioning into more of a search engine strategy will be
enough to finally bring Altavista into the black remains to be seen. One thing is for certain: the
timeline for its IPO wasn't an accident.
"Things could come together very quickly," says Fred Moran, head of Internet research at
Jefferies. Believing that an industry-wide slump from ad revenues has been overstated, Mr.
Moran says, "There's a good chance of recovery by October and through the end of the year."
Coincidentally, Altavista filed to go public last December.
RAISING THE STAKES
For CMGI, which purchased an 81.5 percent stake in Altavista from Compaq for $1.8 billion last
August, the gambit has some big implications. The Internet incubator hasn't seen a portfolio
company tap the IPO market since February. Since Vicinity (Nasdaq: VCNT) went public in
February, CMGI has seen its stock price fall almost 75 percent, or some $27.5 billion in market
capitalization. That's not to say that CMGI hasn't had any liquidity events. CMGI sold eGroups to
Yahoo in exchange for 3.4 million shares in June, and sold Half.com to eBay for about $53.6
million in July. Given the importance of Altavista to CMGI's operations -- the subsidiary would
have been valued at about $2.9 billion under terms of its withdrawn offering -- a similar sale isn't
seen as desirable.
For Altavista, a public offering is critical. Without access to the equity capital markets, analysts
believe it may be falling further behind its rivals -- last Friday Yahoo filed a shelf registration to
offer up to $1 billion of debt and equity securities. The critical initiatives facing both portals and
search engines are wireless and broadband distribution, business-specific applications, and
international expansion, all of which are capital-intensive. |
