Initial Public Offering

Netscape Communication
By : Divya Pritwani
Roll : 10DCP-008
Netscape Communications Corporation
Founded in April 1994
Business – Comprehensive line of client, server, and
integrated applications software for communications
and commerce on the internet and private Internet
Protocol (IP) networks
Financial Highlight – Losses of $4.3 million on total
revenues worth $16.6 million during the first two
quarters
Entrance in the Internet Market (December
1994)
It entered through its flagship browser, Netscape
Navigator
Netscape’s Strengths at this time –
1. Original Mosaic Code – by paying $2.4 million
2. Jim Clark’s Management Experience
3. $3 Million in Seed Money
4. Mark Andreessen’s Technical Expertise – creator of
Mosaic
Challenges at this time –
1. It had to set a new industry standard – immediate
concern
2. It had to make money
Competitors and Market Leadership
Netscape – Market leader in the Internet Browser
market with a 75 % market share by mid 1995
Nearest Competitors
1. Spyglass – owner of Mosaic
2. Microsoft – Windows
3. AOL and Prodigy – transformation from online
platform to internet platform (market)
Objective of an IPO
Increasing Competition
Fund expected future growth – Investment in R&D
To stockpile cash reserves for potential acquisitions
To gain visibility and credibility within the industry
To sustain in this dynamic and nascent market
 The IPO
The Investment bankers and Underwriters
determined the price @ $14 per share for the
public issue of 3.5 million shares

Road show – The underwriters inferred the

demand for Netscape’s share to be very high

Thus, they proposed to the management to issue

5 million shares at a price that was 100 % higher
Dilemma faced by the Board - Valuation
To justify the increase in price by 100%
Net book value – just over $16 million
Proposed Valuation – over $1 billion
Risks Associated with Over Valuation
Dynamic Internet Browser Industry
Industry at Nascent stage – Difficult to predict the
future
Negative Bottomline - Netscape was yet to earn a
profit
Public reaction was very uncertain
‘Hot Issue’ IPO Market – Historical pricing of IPO
issues
Enthusiasm in the Wall Street
THANK YOU