Netscape

Netscape's IPO
Harvard Business School
Case Software 2-296-728
Copyright (c) 1996 by the President and Fellows of Harvard College.
This case was prepared as a basis for class discussion rather than
to illustrate either effective or ineffective handling of an
administrative situation.

Page 1

Exhibit 1

Exhibit 1

Consolidated Income Statements for Netscape Communications Corporation

Inception (April 4 to
December 31, 1994)

Six Months Ended June

30, 1995

Revenues:
Product revenues

$378,490

$15,580,258

Service revenues

317,381

1,045,133

Total Revenues

695,871

16,625,391

Cost of product revenues

114,777

1,222,045

Cost of service revenues

104,313

513,767

Total Cost of Revenues

219,090

1,735,812

476,781

14,889,579

Research and development

2,031,986

6,115,152

Sales and marketing

2,813,689

9,256,066

General and administrative

1,669,193

3,693,005

Property rights agreement and related charges

2,486,688

500,000

Total Operating Expenses

9,001,556

19,564,223

-8,524,775

-4,674,644

55,238

495,583

-308

-128,655

($8,469,845)

($4,307,716)

Cost of Revenues:

Gross profit
Operating Expenses:

Operating loss
Interest income
Interest expense
Net loss
Net loss per share
Shares used in computing net loss per share

Page 2

($0.26)

($0.13)

32,256,307

33,000,751

Exhibit 2

Exhibit 2

Consolidated Balance Sheets for Netscape Communications Corporation

December 31,1994

June 30,1995

$3,243,510

$8,868,436

--

16,567,300

Accounts receivable

701,649

8,277,869

Other current assets

67,284

804,971

4,012,443

34,518,576

2,447,098

6,761,045

699,100

1,251,582

$7,158,641

$42,531,203

$855,068

$4,607,174

Accrued compensation and related liabilities

527,340

1,075,066

Other accrued liabilities

667,503

1,897,819

2,575,145

14,963,843

725,000

725,000

Installment notes payable

--

551,449

Total current liabilities

5,350,056

23,820,351

725,000

725,000

--

1,511,331

6,075,056

26,056,682

Preferred stock, $0.0001 par value

701

901

Common stock, $0.0001 par value

451

1,514

9,552,278

39,683,666

Notes receivable from stockholders

--

(638,065)

Deferred compensation

--

(9,812,151)

(8,469,845)

(12,777,561)

--

16,217

1,083,585

16,474,521

$7,158,641

$42,531,203

Assets
Cash and short-term equivalents
Short-term investments

Total current assets

Property and equipment, net
Deposits and other assets
Total Assets
Liabilities and Stockholders' Equity
Accounts payable

Deferred revenues
Current portion of long-term obligations

Long-term obligations
Installment notes payable
Total Liabilities

Additional paid-in capital

Accumulated deficit
Accumulated translation adjustment
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity

Page 3

Exhibit 3

Exhibit 3

Comparative Information on Potential Competitors (for year ended June 30, 1995; in $000s except per-share d

Netscape(a)

America
Online, Inc.

Microsoft
Corp.

Spyglass,
Inc.

Net revenues
Operating expenses
Operating income (loss)
Interest expense
Net income (loss)

17,321
30,521
(13,200)
(129)
12,778

394,290
413,584
(19,294)
-(33,647)

5,937,000
3,899,000
2,038,000
-1,453,000

9,084
6,745
2,339
-1,509

Earnings per share

Weighted average shares outstanding

(0)
33,001

(1)
33,986

2
627,000

0
3,788

Capital expenditures
7,618
Depreciation, depletion, and amortization 918

57,751
11,136

495,000
269,000

824,609
161,303

Current assets
Cash and short-term investments
Total assets
Current liabilities
Total liabilities
Net worth

34,519
25,436
42,531
23,820
26,057
16,475

132,856
64,050
406,464
133,312
188,520
217,944

5,620,000
4,750,000
7,210,000
1,347,000
1,877,000
5,333,000

37,372
34,556
39,963
2,718
4,368
35,595

1
0

1
0

4
--

14
--

Common stock price (close)

P/E ratio

N/A
N/A

22
N/A

90
39

14
35

Equity beta(b)

N/A

N/A

Current ratio
Debt/total capital

(a) Netscape's financial data reflects the company's performance since inception in April 1994.
Netscape did not begin to ship products or earn significant product revenues until December 1994.
(b) Bloomberg estimates based on weekly data for the year ended June 30, 1995.

Page 4

Exhibit 3

30, 1995; in $000s except per-share data)

cember 1994.

Page 5

Exhibit 4

Exhibit 4

Historical Data of the IPO Market

1990

1991

1992

1993

All IPOs:
Number of companies
Total dollar amount offered (in $ billions)
Average % gain after first day of trading

166
4.75
10.3

352
16.01
11.6

477
22.76
9.4

604
30.74
11.7

Venture-backed IPOs:
Number of companies
Average age of companies
Total dollar amount offered (in $ billions)
Average offering size (in $ millions)
Average offering valuation (in $ millions)

42
6
1.19
28.3
109.3

122
6
3.9
32
118.5

152
6
4.58
29.1
101.7

165
7
4.86
29.6
100.5

Page 6

Exhibit 4

1994
510
17.98
8.1
136
7
3.35
24.8
86.8

Page 7

Exhibit 6

Exhibit 6

Information on Internet-related IPOs (for the respective fiscal year preceding the IPO)

Netcom Online
Communication
Services, Inc.
(year ended
12/31/93)
Financial Data:
Net revenues
Operating costs and expenses
Operating income
Interest expense
Net income

Performance
Systems
International,
Inc.
(year ended
12/31/94)

Spyglass, Inc.
(year ended
9/30/94)

$2,411,600
2,169,600
242,000
-3,400
227,300

$15,214,000
19,876,000
-4,662,000
-731,000
(5,342,000

$3,629,392
2,272,662
751,520
-1,331,262

Earnings per share

Weighted average shares outstanding

$0.04
6,300,600

($0.26)
20,395,000

$0.39
3,448,952

Capital expenditures
Depreciation, depletion, and amortization

1,027,600
156,900

2,536,000
3,183,000

208,567
68,034

Current assets
Cash and short-term investments
Total assets
Current liabilities
Total liabilities
Net worth

235,500
75,500
1,347,000
789,300
802,300
544,700

5,564,000
3,358,000
17,055,000
7,118,000
11,721,000
5,334,000

3,254,562
1,450,651
5,296,727
1,406,727
3,056,727
2,240,000

12/14/1994
$13.00
1,850,000
28%

5/8/1995
$12.00
4,370,000
17%

6/27/1995
$17.00
2,000,000
40%

31%

27%

60%

IPO Data:
Date of IPO
Price per share offered
Number of shares offered
% of total equity sold
% change in stock price after first day of trading
Price per share on August 8, 1995

$36.38

Page 8

$22.00

$49.25

Exhibit 6

Uunet
Technologies
Inc.
(year ended
12/31/94)
$12,413,863
19,387,821
-6,973,958
-76,232
-6,948,759
($0.35)
20,029,824
5,897,309
1,010,027
6,192,629
4,649,737
12,024,575
5,755,418
6,422,085
5,602,490

5/25/1995
$14.00
4,725,000
17%
96%
$46.25

Page 9