Jun 12, 1998
Netscape
(Nasdaq:NSCP - news)
Phone: 650-254-1900
Website: netscape.com
Price (6/11/98): $25
HOW DID IT FIND TROUBLE?
When is a company with a 60% share of the market in a booming industry considered an underdog? When your nearest
competitor just happens to be Microsoft (Nasdaq:MSFT - news) -- closing in fast.
Netscape owned the Web browser market with its Netscape Navigator long before Microsoft introduced its Internet Explorer
in 1995. Just as Windows 95 was rolling out with Microsoft's upstart browser included, Netscape went public. A few months
later the shares were trading as high as a split-adjusted $85 a share. That is when Navigator lost its northerly direction. It got
lost. For Netscape to shed half its value may have been understandable then. Microsoft was no Spyglass (Nasdaq:SPYG -
news) , or any of the other makers of lesser browsers.
But over this past year, when attracting eyeballs in large quantities has meant great sums of capital appreciation for just about
every Internet-related company, Netscape has not only lagged the market, it has lost half its value yet again. Despite drawing
nearly 23 million monthly visitors to its website, the company has been largely overlooked as a potential Internet growth play.
It seems strangely similar to the personal computer market, where the two companies that created the market in the first place,
IBM (NYSE IBM) and Apple (Nasdaq:AAPL - news) , proved to be poor investments relative to the nimble imitators over
the past decade.
But is Microsoft nimble? Hardly. However, by taking advantage of its operating system dominance, it has found itself a captive
Windows audience and has managed to ink lucrative browser deals with the likes of America Online (NYSE:AOL - news) .
While the legality of Windows 98, once again featuring Internet Explorer on its desktop, is in question, the story here is with
Netscape -- the once headstrong Wall Street darling, the company whose Chief Technology Officer graced the cover of Time
barefoot. Maybe he was readying himself to walk on hot coals -- because it has been one painful trip since then. Error 404,
browser popularity not found.
BUSINESS DESCRIPTION
California-based Netscape's proprietary software, Netscape Navigator, allows users to surf the Net once they have logged on
through an Internet service provider. The company is also concentrated in the applications server market and has recently made
new deals for ventures ranging from electronic commerce to networking.
FINANCIAL FACTS
Income Statement*
3-month sales: $127.2 million
3-month income: $0.00
3-month EPS: breakeven
Profit Margin: N/A
Market Cap: $2450 million
(*Netscape recently changed its fiscal year for financial reporting purposes. The numbers here are for the 3 months ended Apr.
30, 1998.)
Balance Sheet
Cash: $96.1 million
Current Assets: $372.6 million
Current Liabilities: $227.5 million
Long-term Debt: $0.2 million
Ratios
Price-to-earnings: N/A
Price-to-sales: 4.8*
(*Based on annualized quarterly numbers)
HOW COULD YOU HAVE SEEN IT COMING?
The tumble from a frenzy-smitten $8 billion market cap to a $4 billion company last summer was not a surprise. As the
company weathered, not taking advantage of its captive audience by more effectively selling the prime real estate on its popular
home page, critics may have given the company an earful. But the potential alone should have kept Netscape in the hunt as
investors flocked back to Internet stocks -- certainly not fodder to be cut to the $2 billion company it is today.
However, at a time when most investors would overlook a money-losing "e-tail" venture reporting a deficit, when Netscape
reported a quarterly loss late last year and announced 400 layoffs, shareholders got jittery. This was a growth segment, right?
In today's market it will cost you two Netscapes to buy one Yahoo! (Nasdaq:YHOO - news) or eight Netscapes to equal the
market cap of America Online (NYSE:AOL - news) . At its peak, one Netscape could have bought you both bellwethers.
The recent demise is unfortunate, naturally, but a good indicator that even in a booming niche, dormant players will often miss
the ride on the coattails. As Internet Explorer began to lock up prime partners, from America Online to Disney's Daily Blast, it
became apparent that Microsoft was not content to place all its market share eggs in the Windows 95 and Windows 98
baskets.
Microsoft's online service, MSN, has floundered despite having a heavy presence on its operating system software. That
Microsoft is on the offensive to win the Web browser war should serve as a wake-up call to Netscape -- a call which, given
the last few weeks of news, it is apparently heeding.
WHERE TO FROM HERE?
The perfect example of how Netscape was not capitalizing on its home page popularity came when the company recently inked
a $70 million deal with search engine specialist Excite (Nasdaq:XCIT - news) to sell advertising on a revamped Netcenter
page. Netscape receiving the $70 million bounty for a two-year deal may have seemed nice -- until Excite, on its very first day
on the job, managed to sell $21 million in advertising. As a portal clone of Yahoo! this may be a case of an innovator imitating
an innovator, but Netscape is, for better or worse, now a multi-faceted company.
A new Netscape is emerging. The company is now positioned as both a software provider and an Internet '"portal" service. It is
shoring up its Web offerings and with My Netscape, Internet drifters will be able to find ABC News headlines, stock quotes,
3M (NYSE:MMM - news) Post-It Software notes, Macromedia (Nasdaq:MACR - news) animation programs and even
IDT's (Nasdaq:IDTC - news) Net2Phone (which allows reduced-cost long-distance phone calls by transmitting voice from
one's Internet connection) in one place.
Netscape has lined up two dozen software partners to allow automatic updates from Netscape's site. Recently Netscape
announced a deal with Bay Networks (NYSE:BAY - news) to deliver the first Directory-Enabled Networking (DEN)
solution to the market. This cost-effective solution would link the administration of network hardware with enterprise-class
directory software services.
The company also continues to march ahead in the applications server market, and earlier this year signed a contract to license
its electronic commerce software to banking juggernaut Citibank. This is not last year's Netscape, that's for sure. And, while
some analysts may feel that the company is spreading itself too thin by specializing in too many areas right now, it got burned
before by sleeping at the wheel in one niche. A little diversity and a new strategy might lead Netscape back into that northern
course of yesteryear.
-Rick Aristotle Munarriz
(tmfedible@aol.com) |
