Netscape Ipo Case

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08 Fall 08 Fall NETSCAPE IPO CASE NETSCAPE IPO CASE Introduction In evaluating the IPO Case for Netscape, many issues needed to be analyzed; including Netscape’s long-term strategy, its market position, and the current investor opinion of the company. Furthermore, we needed to evaluate the capital needs of Netscape going forward that would help fuel growth in a highly competitive business segment. The decision needed to be made on whether or not Netscape should approve a $28/share IPO price as opposed to the offering price of $12-14. Given Netscape’s growth and expense assumptions, it can be concluded, based on DCF models, that Netscape would have to achieve an annual growth rate of 39% to justify a $28/share offering. Market Overview and Capital Needs Currently, Netscape is the market leader in providing a feature rich UI experience for the booming internet market; however, their current business model is unprofitable because they are giving that software away in hopes of cornering the market and creating an ecosystem based around the software – an ecosystem that will be profitable. Their main competition is currently Microsoft who is already bundling their browser software along with their Windows OS, which places accelerated growth pressure on Netscape to innovate and create new products to bundle before Microsoft eats up too much of the market. This brings us to Netscape’s need to raise capital – the pressure from Microsoft is forcing Netscape to raise the bar at a time when they are not yet profitable. Going public provides less risk than pure debt financing because of the added risk brought on by future fixed expenses in the already highly competitive environment. In addition, the large amounts of capital needed to fund their projected growth may be difficult to secure from strictly private investors. Along with said difficulty, other
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