It's glad to see this thread come back to life, and I appreciate both long and short opinions. My contribution is from CMPnet. The link is below, and I pasted the entire text if you don't want to hyper on over.
Crusader
techweb.com
Netscape: Internet Play?
Tuesday, September 29, 1998
Netscape [NSCP] has been battered along with other high-tech stocks in the recent market correction. After closing above 41 on July 2, Netscape's shares have fallen steadily, reaching the low 20s last week. Should you invest in the company at this price?
Schaff's Bio
Taking Stock Archives
Model P Archives
To answer that question, you need to figure out whether Netscape is an Internet technologies and services company, or an enterprise software company. Given the company's low stock price, Wall Street has clearly focused on Netscape's slow-growing enterprise software business. As usual, I believe the Street is behind the curve.
Before you start sending me disparaging E-mail (I get at least 10 a day), let me explain. Enterprise software sales represent 74% of Netscape's revenue. This side of the business actually seems to be on the verge of a turnaround because of the burgeoning demand for E-commerce tools. The average price of Netscape's enterprise product deals in the latest quarter was $500,000, and almost half were worth more than $1 million.
But Netscape will continue to face fierce competition from Microsoft and IBM in this sector, and enterprise software sales will continue to grow more slowly than the company's Internet technologies and services business.
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"Netscape's future may be in the broad arena of corporate communications management."
-- Bill Schaff
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Netscape recently signed a three-year strategic alliance with Qwest Communications to offer customers data and voice communications through a new single-source service. Netscape Contact is available through Netcenter, the company's Internet "portal." Users will be able to access a personal online address book, and will get a unified in-box for receiving E-mail, faxes, pages, and voice mail. They can also sign up for local, long-distance, and online communications services.
The future demand for these combined services for corporate customers, assuming they are competitively priced, looks strong. Netscape's future may be in the broad arena of corporate communications management.
Netcenter has become a key growth engine for Netscape since its launch last year. The site has signed up more than 7 million members and is adding 500,000 more a month. In comparison, America Online has more than 13 million members. Netcenter has become an Internet destination similar to AOL and Yahoo.
In Netscape's fiscal third quarter, revenue from Netcenter was $38.7 million, a 24% increase on the previous quarter and 32% above the third quarter a year ago.
It now makes up about 26% of Netscape's total revenue and 67% of service revenue, which includes income from advertising, consulting, support, and training. In addition, there's talk that Netscape will soon announce a major deal with a large media company.
Netscape's management team reads like a Who's Who of technology: Marc Andreessen is executive VP, and James Barksdale is CEO. In addition, the company hired Barry Ariko, formerly a senior executive at Oracle, to be chief operating officer. It still remains to be seen whether all this brain power can turn Netscape into the leading Internet portal company.
For the quarter ended July 31, the company reported $150 million in revenue, an increase of 18% year over year. Product revenue was $92 million, and services revenue was $58 million. Gross margins declined dramatically to 76% last quarter because of a change in accounting methods (all technical support, training, and professional services costs will now be included in cost of goods sold). Operating margin improved to -1.4% from the previous quarter's -5.3%.
Wall Street expects Netscape to lose 60 cents per share in fiscal 1998 and make a profit of 37 cents per share in 1999. My projection for fiscal 1999 revenue is about $740 million, with net margins rising to about 6%. I've got a 12-month price target of $30, which makes Netscape the cheapest play on Internet portal companies.
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