Here's a fairly balanced analysis by Motley Fool:
fool.yahoo.com
The Lunchtime News
Jan 05, 1998
FOOL PLATE SPECIAL
An Investment Opinion by Dale Wettlaufer
Growth Slows, Netscape Falls
Netscape Communications (Nasdaq:NSCP - news) was scraped for a $5 1/4 loss to $18 1/8 this morning after the company announced that, based on results for the quarter, it's far from the fastest-growing software company on the planet. Due to a number of factors, the company expects to report a fourth quarter loss of $0.15 to $0.19 per share before one-time merger-related charges and restructuring expenses. For the year, the company expects to report EPS of $0.08 to $0.11 before charges, well below the $0.45 mean estimate published by First Call. The company also announced a 35% million restructuring charge to close facilities and reduce certain parts of its workforce. That move will probably help margins, as the company regularly spends one-quarter to one-fifth of its revenues on R&D.
Year-over-year revenue growth in the fourth quarter was the big problem, with growth slowing from the 75.4% seen in the first nine months of the year to 9% to 13% in the fourth quarter. Although revenue growth had slowed to 50% last quarter, analysts and investors believed that was still a very respectable growth rate. Client revenues had declined to 38% of sales last quarter, an indication that the company was progressing with its strategy of moving away from being dominated by client-based revenues and toward commercial applications, servers, and services. Both client and server software sales were hit this quarter, though, with both causing damage to top-line growth. Navigator sales fell to $17 million, down 67% from last year, though some of those sales were replaced by the more comprehensive Communicator client. Client revenues for commercial customers were hurt in Europe and Asia, and retail sales in general were soft.
More importantly, commercial enterprise application sales didn't meet the company's target, even though those revenues increased 68.5% over last year. Pricing and lengthening sales cycles were the root cause of the missed targets. In addition to a slowdown in corporate spending on software last quarter, which was seen in Oracle's (Nasdaq:ORCL - news) recent results, Netscape also had to deal with a lengthening in its sales cycle as it introduced new products to corporations. However, the company says it is in good shape there with a "healthy pipeline" of enterprise application business. Nevertheless, Morgan Stanley's Mary Meeker went so far as to lower that company's rating on the stock to "outperform" from "strong buy" only two days after saying there was a good chance that the company would miss its quarter but leaving that "strong buy" rating in place. Apparently Meeker was really taken by surprise by these results. Hitting a new all-time low today, Netscape's price/sales ratio (on annualized revenues) is the lowest it has ever been. Investors knowledgeable about software and the issues Netscape faces may find the company interesting at this level, especially given the company's progress in the enterprise and server arena.
Here's the Netscape News Release:
PR Newswire
Copyright (c) 1998, PR Newswire
Monday, January 5, 1998
Netscape Announces Preliminary Fourth Quarter Results
MOUNTAIN VIEW, Calif., Jan. 5 /PRNewswire/ -- Netscape Communications Corporation (Nasdaq: NSCP) today announced that, based on a preliminary analysis of its results of operations, it expects to report revenues for the fourth quarter ended December 31, 1997, in the range of $125 million to $130 million. The preliminary fourth quarter 1997 revenue range represents approximately 9 to 13 percent growth over revenue of $115 million in the fourth quarter of 1996. The company also expects to report a net loss for the fourth quarter of 1997 in the range of $85 million to $89 million, or a net loss of $0.88 to $0.92 per share after the effect of non-recurring costs of
approximately $52 million in merger-related charges and $35 million of
restructuring costs. When excluding the non-recurring charges, the net loss for the fourth quarter of 1997 is expected to be in the range of $14 million to $18 million, or a net loss of $0.15 to $0.19 per share.
The company expects to report revenues for the year ended December 31, 1997, in the range of $534 million to $539 million. The preliminary 1997 year-end revenue range represents approximately 54 to 56 percent growth over revenue of $346 million in 1996. The company also expects to report a net loss for 1997 in the range of $113 million to $117 million, or a net loss of $1.20 to $1.24 per share, after the effect of approximately $105 million of merger-related charges and $35 million of restructuring costs. When excluding the non-recurring charges, the net income for 1997 is expected to be in the range of $7 million to $10 million or $0.08 and $0.11 per share.
The slower than expected overall revenue growth in the fourth quarter of 1997 versus the fourth quarter of 1996 is due in part to competitive pressures that caused standalone client revenues to decrease. The standalone client revenue decrease particularly impacted the company's European, Asian and retail businesses. The Asian business was further affected by regional economic conditions. In addition, Netscape's enterprise software and services revenue fell below expectations due to competitive pricing pressure and longer sales cycles associated with new, more sophisticated enterprise software products.
"We planned to grow our enterprise sales and support revenue in the fourth quarter to a greater extent than we were able to. Because of a variety of factors affecting our enterprise business, that growth is taking longer than expected," said Jim Barksdale, Netscape's president and chief executive officer. "We plan to address these issues immediately. To accelerate our transition to an enterprise software company, we plan to streamline our business to focus on key enterprise market opportunities and eliminate unrelated expenses. We believe this streamlining combined with our fourth quarter investments -- including the acquisition of Actra Corporation and Kiva Software for electronic commerce applications, and the continued build-out of
our enterprise sales and support infrastructure -- position us to be an industry leader in 1998 in the growing e-commerce, messaging, service provider applications and custom Internet solutions markets."
Netscape plans to reduce its overall expenses and restructure its business beginning immediately. As a result, the company has taken a restructuring charge of approximately $35 million in the fourth quarter of 1997 in connection with a reduction in force, the closing of certain facilities and other write-offs. This restructuring will enable Netscape to focus its remaining resources on the enterprise software business. Added Barksdale, "By adjusting resources to increase our focus on and aggressively pursue enterprise revenue
opportunities, we believe we are positioned to return to profitability in 1998."
These statements regarding estimated results are preliminary and based on partial information and management assumptions. The company expects to announce its actual results for the year and fourth quarter of 1997 on January 27, 1998.
The information in this release regarding expected revenues and net losses is forward looking and preliminary. Actual final results for the year and the quarter could differ, depending on a number of factors, including accounting adjustments made during the course of closing the year and the roll-up of actual financial data from the company's various business units. For a more detailed discussion of factors that affect the company's operating results, interested parties should review the company's SEC reports, including Netscape's Annual Report on Form 10-K for the year ended December 31, 1996, and
Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30 of 1997.
Netscape Communications Corporation is a premier provider of open software for linking people and information over enterprise networks and the Internet.
The company offers a full line of Netscape Navigator clients, servers,
development tools, and commercial applications to create a complete platform for next-generation, live online applications. Traded on Nasdaq under the symbol "NSCP," Netscape Communications Corporation is based in Mountain View, California.
Additional information on Netscape Communications Corporation is available on the Internet at home.netscape.com, by sending email to info@netscape.com or by calling 650-937-2555 (corporate customers) or 650-937-3777 (individuals).
Netscape is a trademark of Netscape Communications Corporation, which is registered in the United States and other jurisdictions. Netscape Communications, the Netscape Communications logo, Netscape Navigator, Netscape SuiteSpot, Netscape Composer, Netscape Messenger and Netscape Communicator are trademarks of Netscape Communications Corporation.
/CONTACT: Rosanne Siino, Vice-President of Netscape Communications
Corporation, 650-937-2619, rosanne@netscape.com./ 06:00 EST |
