Meta-Isp Abovenet Files For Initial Public Offering

Computergram International, Sept 14, 1998

Internet service exchange company AboveNet Communications Inc has filed for an initial public offering of stock to raise $57.5m. It did not disclose the number of shares it intends to offer, or their price. AboveNet has built two internet service exchanges (ISXs), one in San Jose, California, and the other in Vienna, Virginia.

These exchanges are designed from the ground up to host high- traffic web sites like CNet's Download.com. RealNetworks Inc, Electronic Arts Inc and Liquid Audio Inc, giving customers "one hop" connections to the internet backbone. As of August 31, AboveNet had approximately 300 companies like these signed up for its specialized services.

It wants more such customers, and it intends to get them. In its filing, AboveNet repeats Forrester Research Inc's estimate that by 2002, 40% of complex web sites will be outsourced.

Like most internet companies, AboveNet loses money and plenty of it: $5.4m this fiscal year and $1.8m the year before that. "The revenue and income potentialof the Company's business and market is unproven," the filing drily notes.

The company needs to grow and retain its customer base. The sales cycle, however, is lengthy. Operations fluctuate, in spite of which significant new investments will be required. As competition in the market grows ever more intense, the company depends more and more heavily on a few key staff - particularly in the event of system failure.

Then there are security risks, government regulations, legal uncertainties and the year 2000, any or all of which could spell doom for AboveNet. "There can be no assurance that the Company will ever achieve profitability," the document concludes. Anyone for shares?