Positive response from techinvestor.
Netscape Impresses Without Profits
(05/26/98; 8:09 p.m. ET)
By Malcolm Maclachlan, TechInvestor
Seldom has a company impressed so many people by
breaking even as Netscape did Tuesday.
In the wake of a new business strategy and complete
loss of all revenue from what was once its flagship
product, the company announced profits of $8,000 on
revenue of $127 million for the quarter ending April 30,
1998. Financial analysts estimated the company would
lose between three cents and 10 cents per share, with
most predictions leaning toward the latter figure.
"You have to look at what's happened in the past year,"
said analyst Julianna Nelson of International Data Corp
(IDC). "If you compare this to December, they're doing
a significant job."
The enterprise server software business contributed $96
million of the revenue, up from $68 million for the same
quarter one year ago, and from $91 million last quarter.
The Netcenter portal site grew as well, delivering $31
million in revenue, an increase from $21 million last
quarter. Those gains helped offset the loss of all
revenues from the Navigator browser, a product that
Netscape (company profile) began offering free earlier
this year because of competition from Microsoft, which
gives away its Internet Explorer browser. Netscape
made $33 million from the browser during the same
quarter a year ago, and $13 million two quarters ago.
"Netscape's strategy has resonated with the
marketplace," said CEO Jim Barksdale. "And Netscape
has executed well against that strategy."
Barksdale cited recent gains in both of the company's
key markets. This year it has added major enterprise
software deals with the likes of Citibank, Hong Kong
Telecom, and Netcom. These deals, he said, will help the
company add more enterprise customers in the near
future.
"The most important thing you can have in asking for a
sale is a good reference," Barksdale said.
It is important that Netscape continue to deliver
high-profile enterprise deals over the next two quarters,
said Jim Balderston, an analyst with Zona Research.
Some potential customers, he said, might worry about the
level of support Netscape can provide for these products
-- and if the company will be around a few years down
the line. A profitable quarter based on enterprise
revenues could dispel some of those concerns.
Netscape has also been trying to push its Netcenter site
through an initiative known internally as Project 60. The
site, Barksdale said, is now getting 25 million distinct
visitors a month, more than 8 million every day. It is
adding 600,000 users a month. Netscape is also trying to
increase the business focus of the site with a new,
small-business section and other content.
This business focus could be important, IDC's Nelson
said, since Netscape's radically different businesses
sometimes makes it seem as if the company lacks focus.
Yet the Netcenter site makes good publicity for the
company. Giving enterprise customers a value add
through Netcenter could be quite a coup, she said,
considering all the other companies trying to sell
business-oriented content online.
Netcenter is radically changing in the midst of an
increasingly competitive portal market. Last week
Netscape split with Yahoo, which had been its major
content partner, but will now be a direct competitor.
Earlier this month Netscape signed a partnership with
Excite that will guarantee Netscape at least $70 million
over the next two years.
None of that revenue is reflected in the current results,
said Netscape chief administrative officer Peter Currie,
meaning that Netcenter revenues should rise
significantly.
The Asian economic crisis drove down Netscape's
foreign sales, which contributed just 13 percent of the
company's revenue, off nearly one-third from the
previous quarter.
"We do continue to see company weakness overseas, as
do many of our competitors," Currie said. He added that
revenue in Europe has stayed steady, despite the
transition from browser to server products.
Some analysts were overly pessimistic about the
company's numbers, Currie said. For one thing, many
analysts gave too much weight to the company's
condition in December and January, when it laid off 400
employees. Since then, he added, the company has been
able to quickly cut expenses.
Netscape's stock lost 1 to 23 7/8 Tuesday, ahead of the
earnings release. IDC's Nelson said she expects the
stock to rebound Wednesday.
Related Stories:
Netscape Posts Break-Even Quarter
Netscape To Lay Off 20 Percent Of Workforce
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