Netscape Case Study

Netscape Case Study

Table of Contents

TOC o "1-3" h z u Question 1 PAGEREF _Toc116898889 h 3Question 2 PAGEREF _Toc116898890 h 3Question 3 PAGEREF _Toc116898891 h 4Question 4 PAGEREF _Toc116898892 h 4Question 5 PAGEREF _Toc116898893 h 5Question 6 PAGEREF _Toc116898894 h 6References PAGEREF _Toc116898895 h 8

Question 1The company Netscape communications in on its way to issue IPO. The IPO have been issued on the date of 9th August, 1995. At that period of time Netscape was about 15 months old company and was growing at a rapid pace. So, in order to fuel its expansion it had to go Public to fund the companys plan for higher growth. In terms of market share the web browser Netscape Navigator had a very promising future. Its main competitors were primarily Microsoft, America Online and Spyglass.

Success of Netscape

The main success factor of this particular organisation can be ascribed into a lot of varied factors like their convenient browsers of clicking and pointing which is considered to be a lot user friendly than others in the market. The browser lets surf through websites, works on both of the sides of the certain market and theses all factors help the firm to grow in a proper speed through the industry.

Strategies of Netscape

The company is destined with one particular strategy which is to give away today and make money tomorrow. The certain software is served without including any charge for it to any person that has the technical knowledge of reclaiming it electronically. The company of Netscape is basically making their money through selling the certain software of server to such components that desired precise access to marketing towards their potential consumers. The company has their objectives fixed as to dominate the precise market and determine the general standard of industry (Streeter, 2022).

Constant success along with competition

The amount of competitors in the precise market has risen over time as per the increasing number of internet community. Their nearest competitors are the Spyglass Inc. They have sought to compete with the company of Netscape through grasping the corporate market. Thus, it puts the business of Netscape into a position of certain risks, so their services and products are required to satisfy the certain demands of the market, which might be changing ever.

Question 2Whether the company requires to go public in order to satisfy the capital requirements

The company requires financing their certain functions in order to compete with their other competitors in the marketplace. Further, it requires improving and integrating their sector of technology so that their competitiveness could be developed as well. Accumulating their certain reserves of cash for all the possible mergers and investing to more expansion of their market share can widen their certain level of clientele. Utilising the total cash which is acquired from 'going public' in order to settle the certain debt obligations that is fixed for short terms (Dell'Era et al., 2020).

Estimation of capital needs

g = (19564223-9001566) / (9001566) = 1.1734

Cash for next 3 years = 9001566 * (1 + g) ^ 3 = $92416958.83

Cash for the next 5 years = 9001566 * (1 + g) ^ 5 = $436556784.40

Therefore, the requirement for need for capital for Netscape for the next 3 to 5 years is within the range of $92416958.83 to $436556784.40.

Sources from the public market of equity

Some specific sources are the private transaction of equity, lending from bank or to increase the corporate debt and to make a joint venture with certain competitors.

Question 3Reasons for general companies to go public along with its advantages and disadvantages of particular public ownership

The advantages are to receive larger liquidity as well as better accessibility to the capital. The disadvantages are that the equity holders become more broadly distributed which makes the process tough to control the management. All the firms are required to satisfy the fixe requirements of the certain public organistions like SOX or SEC filings and more (Jyoti, 2021).

Question 4The underpricing circumstance where the precise case highlights that the market of IPO is often considered as a hot issue and that is the reason of characterising theses IPOs as underpriced which concerns the firm

There are certain ranges of factors that attribute the reasons of underpricing which are the asymmetry data among the informed as well as uninformed investors. Certain underwriters want to manage their own risk during rewarding the investors in order to take up the risk. Their precise control theories guides to underpriced structures as per the base of stakeholders. Their theories of behavior predict the irrational behavior of the investors (Reeves et al., 2019). Lastly, the theory of managing certain conflicts assists to raise the amount of such shareholders in the organisation. The main concerns regarding such underpricing consist of certain money that is left on the table which particularly represents a certain cost to the company. However, these certain costs could be acknowledged fast along with properly accurately priced problems of shares.

Question 5Price justification whether the suggested offering cost of $28 per share for the stocks of Netscape could be justified or not?

Assumptions according to Exhibits

Annually, the data that included Cost of Goods Sold, Revenue, expenses of R&D and other expenses of business operations for the year 1995 shows amount of data in double for six months period ended 30th June (from Exhibit).

In terms of cost of revenue, total revenue stands at 12.50%.

36.8% goes to R&D from total revenue [6,115,152/16,625,391 = 36.8%] (from Exhibit).

Operating expense inclusive of depreciation 80.9% of revenue in the year 1996 declines to 20.9% till the year 2001 [ratio of operating income of Netscape to Microsoft is 34%] this is derived from [operating expenses R&D] of half yearly income statement of 1995 [19,564,223 6.115.152)/16,625,391 = 80.9%] (from Exhibit).

Decline of capital expenditure from 45.8% in the year 1996 to 10.8% in the year 2001 [7,618,000/16,625,391 = 45.8%] (from Exhibit).

To compute terminal value after the year 2005 is attributed at 4%.

6.75% of riskless rate has been attributed for long term.

Market risk premium at 7.5%.

Analysis

Ratio of cost of revenue to revenue, in the half yearly income statement of 1995 applying that cost of revenue to revenue ratio 1,735,812/16,625,391 is 10.44% .In terms of capital expenditure the assumption practically applies 7,618,000 from 19994 to 1995 as it calculates the original assumption that expenditure for 1995 stands to $12million to be approximate. Capital of expenditure to revenue 12,000,000/ (16,625,391*2) is 36.09%.

In terms of depreciation, 918,000is applied from the original assumption from the whole period of operation of Netscape that is based to calculate the ratio from 1994 to 1995. The recalculation of ratio has been done with respect to depreciation to revenue 918,000/ (695,871+16,625,391) that is 5.3% total revenue is 695871+16625391 for the same period of 1994 to 1995.

These specific analysis have been calculated from the same depiction of data from the Exhibits. As Netscape underwent IPO under these circumstances that are comparable to other companies with data that have been available for internet related IPOs, this showcases a more accurate estimate of values for Netscape, as these calculated values better showcases the example of a company that likely to enjoy strong growth in terms of sales over the next 10 years. The competing companies as are well established and therefore their resultant ratios have depicted smaller values. These companies prices for share have performed particularly well after undergoing IPO: Netcom Onlines price of share tripled in 6 months, share price of Performance Systems doubled in 3 months, 150% increase of share price of Spyglass in 2 months or less and UUNets price of share jumped 3 thrice in less than 3 months. Taking these situations and circumstances for internet related IPOs, share price of Netscape after its IPO, $28 is its offering price is practically constant with respect to the values that have been determined.

Question 6Recommendation to the proposed price of offering, being an executive of firm, investor to the company and a manager who wants to purchase the stock at formerly offered cost.

As an executive of Netscape it is recommended that when the IPO will be successful, the firm will benefit from their raised valuation and will receive an access to more capital. The firm requires growing by around 60% every year in order to explain the proposed price which can help into the long term sustainability. It could be typically expected that the proposed $28 offering price could get rejected as the fact remains that oversubscription is particularly not certain is specifically weighted in this recommendation heavily.

Investor recommendation for Netscape.

Perceptions that are particularly opportunistic could result in companys responsiveness and confidence to market demand. High demand of investor in the recent situation could specifically fail. Underwriters such as H&Q and Morgan Stanley are recommended. Investors that are particularly risk averse may end up concluding that the offering price of $28 is a little on the higher side. The encompassing recommendation for a typical investor who is especially willing to take a higher amount of risk could price that is proposed that is $28 and the one who is particularly risk averse could reject the same (Talukder, 2020).

Would an institutional investor hold the share of Netscape at $14 that was initially proposed or $28 that is the offering price?

Sustainability issue of fund managers are practically more likely to have objectives that are significantly longer term oriented. Assuming the financial and technical expertise of the market are greater than a typical investor the practical recommendation for a fund manager would specifically to reject the $28 proposed offering price.

ReferencesStreeter, T., 2022. Business Model and Monetisation: On the Uses of Buzzwords.tripleC: Communication, Capitalism & Critique. Open Access Journal for a Global Sustainable Information Society,20(2), pp.195-212.

Dell'Era, C., Di Minin, A., Ferrigno, G., Frattini, F., Landoni, P. and Verganti, R., 2020. Value capture in open innovation processes with radical circles: A qualitative analysis of firms collaborations with Slow Food, Memphis, and Free Software Foundation.Technological Forecasting and Social Change,158, p.120128.

Jyoti, D., 2021. Information and Communication Technology (ICT) and Globalization.International Journal of Innovative Science and Research Technology,6(5), pp.224-226.

Reeves, M., Lotan, H., Legrand, J. and Jacobides, M.G., 2019. How business ecosystems rise (and often fall).MIT Sloan Management Review,60(4), pp.1-6.

Talukder, A.K., 2020, December. The Next Generation Web: Technologies and Services. InInternational Conference on Big Data Analytics(pp. 209-229). Springer, Cham.