MSFT Internet Explorer vs. NSCP Navigator Message Board

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Technology Stocks : MSFT Internet Explorer vs. NSCP Navigator

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To: Reginald Middleton who wrote (3222)	11/20/1996 10:55:00 AM
From: Mark Finger	of 24154

I would look at two other numbers that you did not to balance some differences. The first is growth rates. Microsoft is growing at between 25 and 45% in sales (over the past several years. I have problems seeing them pass 50% sales growth over the next couple years. And their profit growth is somewhat slower (especially when expressed in terms of share, because they are increasing their shares so fast; there is a lot of dilution, which must be accounted for). There was a one time bump in profits after Windows 95 was released, but generally their profit growth has been more like 25-30% over the last several years. Contrast this with Netscape's sales growth, which was 500% for the last quarter. I know that they cannot maintain that kind of rate, but I will be surprised if they drop below 100% during the next year because I expect them to continue the strong sequential quarter growth. A real difference between the two companies is their operating margins. Companies with high growth rates have problems maintaining high margins, because they have to re-invest so much in getting and training new employees and there is a lag between the expense and the new sales from that investment. A second way to look at numbers is to look at the price/sales ratio. Microsoft has a ratio of about 11 and Netscape has a ratio of 18. Now when you compare growth rates of the two companies, Netscape no longer appears to be as overpriced. A year ago, I thought that the Netscape prices was totally ridiculous and that the company would have to hit $1B in sales in three years to justify the price. I do not consider the latter event unreasonable any more. That is not to say that there is not a lot of risk with Netscape, especially because they are competing with Microsoft, but they are proving something with their sales growth.

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