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The case analyzes the Initial Public Offering (IPO) of Netscape Communications Inc., in order to recommend a justifiable share price for the IPO. Founded in April 1994, Netscape Communications Corporation provided a comprehensive line of client, server and integrated applications software for communications and commerce on the Internet and private Internet Protocol networks. The primary revenue generator for Netscape at the time IPO was it's Internet Browser, Netscape Navigator. In December 1994, Netscape Navigator generated 49% and 65% of total revenues for the quarters ended March 31 1995 and June 30 1995 respectively. Analysis
Netscape has captured a solid market share following the widespread, and mostly free distribution of the Netscape Navigator Web browser. The exploding growth of Internet and it's wide spread used by companies and individuals stimulated a very high demand for Internet Browsers. Netscape, through it's effective marketing and excellent product innovation was able to capture 60% of the market share and became a market leader. Netscape strategy is to capture market share by giving away it'd Browser product free of cost initially. This is done with a view that once a market leader, it can bundle it's other products and services as addition to Netscape Browser and charge for them. To be successful in the long run Netscape has to come up with Innovative Products. So far Netscape was successful in Browser Products compared to other Web based products. The growth of Intranets and Extranets provides potential for new products and generates need for Innovative products. It could maintain it's competitive position provided Netscape could come with new innovations in the future. It can capitalize on it's browser brand image to sell it's other Interment products. It's current competitive positions is shaken by the intensified competition from software giant Microsoft corporation. Netscape's competitive position came under artillery fire of Microsoft because substantial part of it’s revenues were generated from Browser products only. If Netscape had diversified it's product base competition from Microsoft could have been managed. Netscape need to for public
Netscape is in an industry that is virtually in its birth stage, and growing rapidly. Therefore, this company is poised for a very high growth in the near future (five years.) In order to fund this growing demand for its products, Netscape will need to manage its capital requirements. This is because it would, in the future, might need to invest heavily in order to retain its market share. The need for capital will be in billions of dollars. There are two options for Netscape, or for any other company, which is to either go in for debt financing or go in for equity financing. When the need for capital is substantial, and considering the fact that the company is still to earn a profit, debt financing will impose a very high amount of risk on the company, as it is not certain if Netscape will be able to meet its interest obligations. Other than common stock, the company can go in for preferred stock, and other instruments, which partake some characteristics of the debt instrument but which does not obligate the company to make a payment forthright. Why do Companies go public
The companies go public when there is financing need. When company identify a project with positive NPV it will evaluate the financing options available to the company. The first consideration will be the retained profits and if the retained funds are inadequate to meet the financing needs, it considers the external financing. This can be obtained by either debt financing or equity financing. The decision of debt or equity financing depends on various catalysts ranging from market condition, share holder demographic, financial risk etc. The other reasons include
Providers of initial finance would...