StarMedia Slashes Head Count 25%

NEW YORK — Silicon Alley sweetheart StarMedia Network Inc. said it will cut 25% of its staff in the second round of layoffs in nine months.

The Spanish- and Portuguese-language Internet and media company also announced a narrower-than-expected net loss for the first quarter.

StarMedia (STRM) said the new job cuts will take place throughout the company. Chairman and Chief Executive Fernando Espuelas declined to say how many employees would be let go or how many people StarMedia currently has on staff.

“Right now, since it’s not done yet, we’re talking in terms of percentages,” he told Dow Jones Newswires. “So it’s going to be 25% of the total.” Mr. Espuelas added that none of StarMedia’s offices in the U.S., Argentina, Brazil, Chile, Colombia, Mexico, Puerto Rico, Spain, Uruguay or Venezuela would be closed.

In September, StarMedia laid off 15% of its then 850-person employment roster, or roughly 125 people.

The latest round of layoffs is part of a new restructuring effort that will shift the company toward a high margin, revenue approach from its role as an Internet company with broad reach.

StarMedia will also be discontinuing certain products, such as its home-page service, which generate a significant amount of viewer traffic but doesn’t contribute much revenue. The home-page product, which allows customers to create their own home pages on the web, represents roughly 15% of StarMedia’s page views. The company clocked four billion page views during the first quarter.

“What we’re doing is we’re bringing down the cost basis of the company to be able to reach profitability on target, even at a lower revenue base,” Mr. Espuelas said.

The moves are expected to cut cash operating expenses by 30% to 35% in the second half of the year. The company plans to record a $4 million to $6 million charge in the second quarter.

In the first quarter, StarMedia posted a net loss of $31.2 million, or 46 cents a share, compared with a year-earlier net loss of $35.1 million, or 54 cents a share. Both periods included stock-compensation expenses of $750,000 and $1.2 million, respectively. The mean estimate of analysts surveyed by Thomson Financial/First Call was for a loss of 51 cents a share.

Revenue surged 59% to $16 million.

In 1999, New York City’s Economic Development Corporation offered StarMedia up to $2.5 million in tax incentives and energy subsidies to stay in the Big Apple, which broke down to $4,000 for every new hire beyond its then Manhattan-based workforce of 190. The deal was contingent on StarMedia staying on the island for 15 years.

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