Company Hopes to Raise $125 Million Despite Bear Market, Red Ink and Bad Word-of-Mouth Talk about staying bullish.
Flashcom Inc., a Huntington Beach company that provides a type of high-speed Internet access known as digital subscriber line service, faces one of the worst public markets ever for tech firms, lost $32.7 million (more than three times its sales) last year and has run into a lawsuit from consumers who say the company defrauded them.
What better time to go public?
As much of the tech sector lays low waiting for market troubles to blow over, Flashcom has filed for a $125 million initial public offering. The 420-person company plans to debut on Nasdaq under the symbol FLCM within the next 60 days or so.
“The fact that the market’s bad today doesn’t mean you can necessarily assume it’s going to be bad two months from now,” said Wayne Boylston, Flashcom’s chief financial officer. “The process is fairly lengthy, and the market moves quickly.”
Boylston, who came to Flashcom as part of a new management installed in anticipation of the IPO, declined to talk in more detail citing the pending stock offering. But he did say no one has questioned him or other officials about the wisdom of such a move.
Flashcom provides Internet service, a proven revenue generator in a market expected to explode over the next few years as broadband connections become more common. According to Scottsdale, Ariz., market-research firm Cahners In-Stat, the number of subscribers to high-speed Internet service will grow from 9 million this year to more than 45 million by 2003.
Moreover, some analysts believe broadband infrastructure companies,firms that provide the equipment and connections used to access the Internet,will be among the biggest beneficiaries of consumer and business demand for faster service for applications such as video and voice-over-Internet phone calls.
Meanwhile, 2-year-old Flashcom’s rapid expansion, which already has been costly, won’t end soon. Officials plan to offer service in 50 more metropolitan areas by the end of the year, and 70 more in 2001.
The company has also designed its network to accommodate other, non-specified broadband technologies, which probably include fixed-wireless microwave transmission, satellite connections and possibly cable. Before joining Flashcom, chief executive Richard Rasmus oversaw Comcast Cable’s Internet operation.
Only months ago, Flashcom raised $84 million in venture capital to help buffer losses that have exceeded sales three times over. The company has advertised heavily, using its trademark rocket-powered tortoise to emphasize the speed boost its service provides over telephone lines.
According to its filings with the Securities and Exchange Commission, Flashcom has 30,000 lines in service in 82 metropolitan areas, and had orders for more than 14,000 additional lines. It hopes to use the IPO money to expand sales and marketing efforts as well as its geographical reach.
But even the most promising companies have seen valuations plummet as investors abandon the once-invincible tech sector. And Flashcom could face public relations problems from angry customers: several have set up Web sites lambasting the company, and Internet discussion boards are filled with diatribes outlining bad experiences.
Flashcom’s Boylston declined to comment on customer complaints about service. But they aren’t unusual in the upstart DSL business. Other providers, including big players such as SBC Communications Inc.’s Pacific Bell, have had to scramble to meet demand from users hungry for faster Internet access.
But that same demand means there’s “absolutely” an opportunity for service providers such as Flashcom to cash in, said Mike Lowe, a senior industry analyst for In-Stat.
“The promise of what DSL can bring is a huge revenue opportunity,” he said. “There are a lot of challenges to deploying it right now, a that’s what has slowed down the real revenue-generating machine. But once those barriers come down, and they’re starting to,there’s going to be a lot of pent-up demand to be satisfied.” n
