Sumit Khanna Dr. Yogesh Maheshwari
PGP I, Section: D Finance-I (Sep-Dec’10)
Session Write-up November23, 2010
Netscape’s Initial Public Offering
The case: This case talks about the rise of Netscape in the dot-com era and technology boom of the late 1990s and making the Internet and World Wide Web (WWW) common household terms and services. After being the market leader for some time, now it is facing competition from the likes of Microsoft, Spyglass etc. It needs to raise capital to invest in new projects in order to maintain its position, so it decided to go for public offering.
The company: Netscape was founded in 1994, where it provided a comprehensive line of client, server, and integrated applications software for communications and commerce on the Internet and private Internet protocol (IP) networks. The company’s most popular product, Netscape Navigator and Server software were the leading programs. Using the “give away today and make money tomorrow” Netscape succeeded in capturing 75% of the web browser market.
The Issue: After the IPO was floated, it received tremendously favorable response from the investors and it got oversubscribed remarkably. The underwriters have proposed to management to increase the offering price from $14 to $28. The board had to consider the proposal considering the valuation of the company and the potential risks and rewards that might accompany such a move.
Case Analysis: The Company’s current value is $16million and if it is priced at $28 then it is being valued at over $1billion. For a company which is just 16 months old and yet to see profits this was a huge task. So let us try to see at what rate the yearly revenue should grow in order to have a valuation of $1billion in 10 years. Let us try to use Net Present Value analysis for the time period 1995-2005 with... [continues]
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