Case 1 – Netscape Initial Public Offering
Course: Corporate Finance
Netscape Communication Corporation
Netscape Communication Corporation is a software company founded in April 1994 by Marc Andreessen (co-founder of Mosaic) and Jim Clark (founder of Silicon Graphics). Their mission was to provide open software that connects information and people over the Internet and Intranet. The industry Netscape was in was an extremely unpredictable industry. This Internet sector was fast growing, and quickly expanding. The stock prices increased rapidly and the future profit expectations were great. These times were promising, and therefore the opportunity for young ...view middle of the document...
Netscape introduced a competitive line of products, which were very innovative, and user friendly. The products they offered enabled the customers to “web-surfing” and publish information that was accessible everywhere. Netscape served the market by providing services for companies, E-commerce applications as well as creating the browsers for customers. In other words, they worked on both sides of the market. They were provided in a fast growing market, which was the basis for potential growth for Netscape.
The strategy and business model of Netscape was based on the idea of ‘’give away today and make money tomorrow’’. This means that they distributed the software used for the program Mosaic for free to anyone who was technical enough of retrieving it electronically. With this strategy and purchasing the right of Mosaic, they penetrated the browsers market up to 75%. But Netscape also sells software to companies, to give the company’s marketing access. In order to avoid the risk of competition, Netscape came up with a new industry standard and created a new program.
As said before, the rivals within this fast growing market, has increased as well. This has increased the Internet community drastically, like companies as Microsoft, American Online and Spyglass. The other side of this increased competition is the risk. To dominate the market, their products and must continue with innovations and high quality services offerings. Netscape needs to fulfill the changing demands of the market.
Bigger players also interested in the browser business and entry barriers were not that high. Netscape’s position in the browsers market was not that strong.
Question 2. Value Netscape. Use the following assumptions:
Netscape Communications Corporation
Damodaran describes 3 sort of startup companies, all in a different stage of growth (Aswath Damodaran; Valuing Young, Start-up and Growth Companies: Estimation Issues and Valuation Challenges, May 2009, Stern School of Business New York):
* Businesses that are, in a commercial sense, unformed. The owner of these businesses has an idea that he or she thinks that can fill an unfilled need among customers.
* Other companies are a step further, they have converted the idea into a commercial product, which however shows little in terms of revenues or earnings.
* The third, most advanced startup, is further down the road and has a market for its product or service which shows some revenues and potential profits.
According to question 1 and the description given in the case, Netscape is of type 3.
All assumptions given in the Excel sheet provided by dhr. dr. J. K. Martin are used in file as can be seen on the ‘’Assumptions’’ sheet.
The first and main assumption which had to be made in order to value the company Netscape Communications Corporation was the growth rate at which the revenue will grow from 1995 till 2005. In order to check for this revenue growth we checked the site of Aswath...