> Netscape was always a bet on the future and the odds got
> considerably longer after Bill Gates began articulating
> a strategy for the Internet, starting with Microsoft's
> Pearl Harbor briefing to press and analysts last Dec. 7.
I liked that description. I noted it the day of, but hadn't seen it cited in
the press.
Rohit
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March 29, 1996 5:45 PM ET
Coop's Corner
Netscape: The bloom
comes off the rose
By _Charles Cooper_
)It was just like the good old days for Netscape, which was again the object
of Wall Street's attention -- and fascination.
Investors snapped up the company's shares Friday after officials from Lycos
began blabbing about the deal they struck last week with Netscape: Lycos
agreed to pay $5 million to Netscape, which in return guaranteed 700 million
annual Web impressions from their Internet site. Other Web search engine
companies have struck accords with Netscape and industry analysts say the
financial arrangements are similar to the Lycos deal.
The news sent Netscape's shares up $3 to finish the week at $41.50. Not bad,
but it's a far cry from the 52-week high of $87 the stock hit before its
two-for-one split. Remember the heady days of 1995 when Netscape stock
regularly soared five, six, seven points or more each day? That's all ancient
history.
For the most part, you can usually dismiss doomsday scenarios as the wishful
thinking of short-sellers or insurance salesmen. Still, the stock price does
reflect the market's considered opinion of a company's prospects. When it
comes to Netscape, serious people are now raising valid questions about a Wall
Street darling that not long ago was being touted as the next Microsoft.
Could the bloom be off the rose?
That was always a stretch. Netscape earned only $2.4 million on $40.6 million
in the fourth quarter.
The company has technology, but it does not have a record of proven earnings
over the long term.
Investors had already started bolting for the exits for some time when
insiders began dumping big chunks of stock. To wit: The company's president,
James Barksdale, sold a total of 2.5 million shares between Feb. 12 and 29.
Meanwhile, Netscape's co-founder Marc Andreessen sold 400,000 shares.
Insider stock selling is a highly watched indicator that often sends a signal
about the company's fortunes. Not so, says Netscape, which notes that company
officers such as Barksdale and Andreessen were only exercising their rights
as shareholders. SEC regulations prevented them from selling stock since the
company went public last year and this was their due.
All true enough, although the PR staff could not have orchestrated worse
timing for the news to go public: The stock sale disclosures came smack in the
midst of a prolonged slide in the company's stock price.
With 20-20 hindsight, it's easy to explain why the stock fell from the
stratosphere. Before its IPO, Netscape was hyped to the high heavens. When the
hype disappeared, the stock approached its real valuation. The experts
caution that any time the bet's on technology and future earnings, be prepared
to pay a risk premium. Indeed, the company has good technology, but it does
not have a record of proven earnings. Netscape earned only $2.4 million on
$40.6 million in the fourth quarter.
Netscape's shares may yet soar again, The stock did not deflate because the
market soured on the company's strategy or management. Netscape was always a
bet on the future and the odds got considerably longer after Bill Gates began
articulating a strategy for the Internet, starting with Microsoft's Pearl
Harbor briefing to press and analysts last Dec. 7.
Naysayers have been waiting for the roof to cave in on Netscape ever since.
That won't happen.
The company will continue to drive technology on the Web but the bloom is off
the rose. Microsoft will attempt to make mischief whenever it can. One way is
to make sure Netscape fails to make any money selling browsers. Browser sales
account for more than 58 percent of Netscape's revenues. So, here comes
Microsoft offering its browser for free -- a delightful touch aimed at making
Netscape's life that much more miserable. Nothing personal, but then again,
all's fair in love, war and business..
The bigger question I have is how Netscape plans to compete against
Microsoft, Sun, and the other companies which have far deeper enterprise
experience. Six months ago, Netscape said it hoped to make its money off the
intranet. Then it focused its energy on browsers. Now it's the intranet again.
"I don't think they've yet figured it out," says one industry executive
familiar with the company.
"They've got to be scared to death."
Netscape got awfully big awfully fast and the word around town is that is not
treating its partners very well. This could be sour grapes from disgruntled
partners, but it's a story I'm hearing quite often.
Some people also think Netscape may be tempted to protect its lead against
Microsoft by getting proprietary about its technology. The goal would be to
undermine the standards process, disrupting the competition by adding features
in proprietary ways that sustain its advantage.
That would be a ticket to a train wreck. Companies get into a heap of trouble
when they obsess about their competitors -- remember Novell under Ray Noorda?
The cool, calm, and collected approach is to remain focused on the customer.
Everything else takes second place.