Cash Infusion Could Mean Earthlink Wants to Quit Helio

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For most startups, $270 million in new funding would be seen as a positive sign.

Not so for L.A.’s Helio LLC, a high-tech cell phone venture backed by a South Korea’s giant SK Telecom Co. and Earthlink Inc. Since the information became public last week, Helio has been barraged by negative press and downbeat assessments from analysts.


That’s because Helio, which is expected to report a net loss of $340 million this year, is far from profitability and the cash infusion has been interpreted as a sign that Earthlink wants out. The dial-up pioneer invested half of Helio’s $440 million initial funding alongside SK Telecom, and was expected to match a subsequent $100 million investment by SK Telecom in July. Instead, Earthlink has remained mum while the Koreans added $270 million.


Earthlink, meanwhile, announced that it was scaling back its operations, cutting 900 jobs and closing a handful of offices.


“They’re ready to get out. They’re looking for opportunities to diversify their business, but Helio is getting too expensive,” said Andy DeGaravilla, an analyst at Compete Inc. “SK Telecom, on the other hand, sees an opportunity to take the majority share. The South Korean market is a lot more tech savvy. They may think if they stick around long enough it’ll pay off.”


That could mean 2009 the year Helio said it expected to begin turning a profit. That projection was made in 2005 and the company hasn’t updated that guidance, spokesman Rick Heineman pointed out.


While Helio’s customer base of about 200,000 is small, it yields revenue per user of about $90 a month, compared to the industry average of $50. That translated to $200 million in revenues over the past 15 months.


Still, content-driven mobile virtual network operators which lease their coverage networks and target a young, high-tech demographic face a notoriously tough market.


“It’s not like all the main wireless brands aren’t offering the kind of content MVNOs do, like messaging, music and entertainment. What is (Helio’s) main differentiator?” said Neil Strother, analyst at Jupiter Research LLC. “Already 78 percent of Americans have cell phones. How do you lure them away from more affordable family plans? They have to prove they can break even and they haven’t done that yet.”


It’s been a volatile year in the sector. Amp’d Mobile, a $360 million venture based in L.A., went down recently after filing bankruptcy in June. Disney’s Chief Financial Officer Thomas Staggs said recently at a conference that Disney has seen challenges distributing its family-oriented MVNO content and the company is “in the process of evaluating where we sit.”


Not everyone is wary, however. Virgin Mobile USA Inc., a joint venture of Sprint Nextel Corp. and U.K.-based Virgin Group, last week filed for an initial public offering of stock valued as high as $467.5 million.



Big Bucks

Demand Media Inc., a 16-month-old startup headed by former MySpace chairman Richard Rosenblatt, has received an additional $100 million in funding.


Goldman Sachs Group Inc. led the second round of financing, along with previous investors, who had pumped Demand Media with $220 million last year.


Demand Media has bought a slew of well-traveled enthusiast Web sites, such as Trails.com, eHow.com and Gardenguides.com, tweaked them with cleaner interfaces and social networking tools and built traffic.


The sites, monetized with contextual advertisements, become powerful vehicles for advertisers who want a specialized audience. The Santa Monica-based company has bought 50 such sites so far and plans to use the new funds to buy more.



In the Cards

PrintsMadeEasy.com, an online company that allows companies to design their own business cards on a Web site, is experiencing explosive growth. The 6-year-old company reported $15 million in revenues this year, compared to $3 million in 2003. It ranked No. 1 among online printing companies featured in the recently released Inc. 5000 listings.


Users can choose among 10,000 templates that are categorized by industry and design their own business cards and advertising postcards. The company says they are produced within 24 hours of the order and mailed within two days at a lower cost than traditional print shops offer. The files can also be saved and amended, online.


“Say you have 200 employees and one employee switched her cell phone number. That person can just go on to our site and change the number and have it shipped the next day,” said Chief Executive Brian Whiteman.


PrintsMadeEasy, based in Chatsworth, has 100 employees and ships up to 10,000 orders a week.



New CFO

Kevin Rubin has been appointed chief financial officer of DataDirect Networks Inc. Rubin comes to the company from MRV Communications, a telecommunication equipment company. Chatworth-based DataDirect Networks develops storage systems for high performance computing, multimedia applications and enterprise storage.



Staff reporter Booyeon Lee can be reached at [email protected], or at (323) 549-5225. ext. 230.

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