The lackluster reception of investors to the initial public offering

AOL Latin America

(AOLA)

speaks less about

America Online

(AOL)

and its strategy in the region then about interest in Latin American Internet plays in general.

Investors these days are as wary of anything having to do with the Internet in the region as American tourists are of drinking the water in Latin American countries.

AOL Latin America has had a tough time bringing its shares to market. First, the company postponed the launch. Then it had to halve the initial $15 to $17 price range for shares to eight bucks. When shares were finally issued on Tuesday, the reaction was decidedly ho-hum. They rose 7/8, or 11%, on the first day of trading.

But before we trash AOL LatAm, and plenty of analysts have been doing that, remember that shares in all Latin American Internet companies have been walloped this year. Two major portals,

Starmedia

(STRM) - Get Streamline Health Solutions, Inc. Report

and

El Sitio

(LCTO)

are down 76% and 90% respectively from their highs this year. Internet service and content provider,

Terra Networks

(TRRA)

, which is a competitor to AOL Latin America, is down 76% since its February peak. And the company's shares have fallen around 27% since the May announcement of its acquisition of

Lycos

(LCOS)

.

Those performances look particularly bad when you consider that the tech-heavy

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Nasdaq Composite Index

as a whole is down the comparatively minor 25% since its peak in March. And the shares have performed worse than the markets overall in Latin America, which have suffered this year under concerns that interest rate hikes in the U.S. and slowing U.S. growth will adversely impact the region. Benchmark indices of the two biggest, Brazil and Mexico, are down only 11% and 20% respectively.

This is probably a good time to remind ourselves, then, of the tremendous opportunities presented by the growth of the Internet in Latin America. Internet users in the region are expected to grow from 16 million currently to 43 million by 2003, well behind the numbers in the U.S. but a much faster growth rate. And online advertising is doubling each year, according to William Landers, Latin American Internet analyst at

Credit Suisse First Boston

.

"The Latin American market is still very interesting," says Landers. He thinks El Sitio and Starmedia are "attractively" priced, saying both have posted better-than-expected revenue recently.

AOL Latin America's timing is not great. It is entering the market at a time when there is little enthusiasm for the overall sector. And it is entering at a time when there are already established companies doing what they want to do, like

Universo Online

, which is the dominant access provider in Brazil. Competition is fierce in the region.

"They are very late to the game," says Robert Hinchcliffe, the Latin American Internet analyst at

Santander

.

It is difficult to find analysts who are enthusiastic about AOL Latin America's chances in the region. In addition to the competition the company faces in the region, analysts are concerned about the difficulties of having a paid service at a time when the trend is toward free service, supported by advertising. And then there are the difficulties of the market itself, which include low computer penetration and low credit card usage, according to Rene Pimentel, who analyzes the Internet industry in Latin America for

Deutsche Bank

. Both are needed if e-commerce is to take off.

But even skeptics agree that AOL Latin America should not be underestimated. The company brings considerable weight and experience to the region, and its alliance with Venezuelan media company

Universo

will provide access to content.

"I wouldn't count them out," says Credit Suisse's Landers.

AOL Latin America may never be able to dominate the region the way its parent company has dominated the U.S. Of course, that does not mean that their regional hopes will come to naught, just that they are coming to the party while everyone is still nursing a hangover.

And sooner or later the party will start again.

David Kurapka's Global Portfolio column appears Mondays, Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

David Kurapka.