Netscape's Initial Public Offering Case

Topics: Stock market, Revenue, Netscape Pages: 5 (1565 words) Published: December 6, 2012
1. What is Netscape’s strategy? What must be accomplished if it is to be highly successful going forward? How risky is its current competitive position? (1 points) Netscape’s strategy:
* Firstly, Netscape with its strategy “give away today and make money tomorrow” offered people the free access to its software in order to build a customer base as well as the foundation of entering the Internet market. * After paying Spyglass a one-time fee for the original Mosaic code, Netscape made its own and new brand to occupy a position in the new field. * To set a new standard, Netscape created a rival program (named Mozilla and then changed to Netscape Navigator) to destroy Mosaic. * After setting the new industry standard, Netscape focused on the Web browser market and sold server software to companies that wanted to enter the market and attract potential customers. The multitude of competitors developed as well as Netscape. Thus, Netscape needs to make a more efficient plan to maintain its growth in the long-term. It should: * Have good performance in financial statement. According the exhibit 1, Netscape has incurred $4.7 million operating loss ended on June 30, 1995. Netscape should concern about its big loss and generate positive operating cash flows to maintain the development and growth. * Lower its costs. Also in the exhibit 1, the operating expenses are much higher than the sale revenue. Netscape should consider using advanced and more efficient method to reduce the R&D as well as sales and marketing expenses. * Make innovation and develop its new product line. Netscape should upgrade its current products in order to become superior among competitors. Developing new product line can help broaden the customers’ base as well as capture more market share. Netscape’s competitive position was quite risky because:

* Spyglass target on the code market as well as corporate market, which set up a strong competition with Netscape on the end-user front. * Microsoft was among Spyglass’s licensees and the most formidable of Netscape’s competitor in the long-term. Microsoft has dominated the operating system and shock Netscape’s leading position in the Internet market. * Other on-line computer service companies created independent browser, which is new technology, challenging the Netscape’s software. * More and more competitors had easier access to the market and provided with diversified products and service. They all wanted to share the big pie with Netscape. 2. What much capital will Netscape need for the next 3 to 5 years? Does Netscape need to go public to satisfy its capital needs? What sources other than the public equity market could Netscape use to raise the money needed? (2 points) a) We calculated the revenue growth rate for Netscape based on average growth rate of its competitors (America Online, Microsoft, Spyglass, Netcom Online, Performance System, and Unnet) after their IPOs. Growth rate after IPO of a company can be quite different from pre-IPO, thus we only calculate growth rate after IPO of all the competitors. We download the income statement of its competitors from Capital IQ, calculated their growth rate and averaged the rate. We assume they are comparable to Netscape as they are in the same industry as Netscape, of similar business style, and similar model. The average growth is 119.88%.

b) For calculation of growth rate of total expenses, we used the same methodology. Growth rate of expenses 187.17%;

c) From the income statement and balance sheet on Netscape in 1994 and 1995, we can see that almost all the expenses come from out of company resources, meaning that we can calculate the future capital needs based on expenses in the future. As an It company that is continuous expanding, its expenses would increase a lot every year. And Netscape need outside capital to support its fast expansion. | 1996| 1997| 1998| 1999| 2000|

Expenses| 201.20| 440.05|...
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