Q1
As Netscape is indisputable leading position in field of Web browser market, the company has great potential to expand its business with its application software. In addition, during the first half of 1995, average 20% of overall 300 IPO companies saw their shares increased on the first day of trading. This outstanding momentum was largely attributed to the Internet companies. Referring to Netscape’s main competitors’ performance of IPO, their stock prices almost increased after first day of trading. Investors are excited about Netscape because they are confident of unprecedented increasing performance of Netscape’s shares. They firmly think that as initial buyers of the firm’s shares, they will gain high returns after Netscape’s IPO.
Netscape earned revenues through three main products. Firstly, Netscape Navigator, a client software program, generated 49% and 65% of total revenues for the first and second quarter in 1995. Together, server and integrated applications software accounted for 36% and 28% of total revenues. Furthermore, revenues from the latter two product lines were expected to increase amazingly in the future. In addition, Netscape also generated service revenues, which accounted for 5% and 7% of total revenues in the first and second quarter in 1995.
Netscape should update technology quickly and expand product line to occupy market in the long run.
Netscape now faces more new competitors entering web browser market for that it is not too difficult for other firms to imitate technology of visual browsers. At the moment, Microsoft would be the most formidable of Netscape’s competitor in the long run, which launched a web browser custom designed to apply in Microsoft operating system. Furthermore, Netscape’s server, accounting for the most greatly increasing revenue in the future, will also compete with Microsoft’s server software which can rely on its fixed customers, but the perspective of Netscape’s server is still unknown. Therefore, crucial business of Netscape should be improved as soon as possible to avoid losing stand position in the field of Internet service.
Q2
According to the case information, Netscape already had investors before IPO like individual investor as Jim Clark; Kleiner, Perkins, Caufield & Byers is as venture capitalist firm; Adobe and 5 other media companies are as corporate investor, and investment bank is like Morgan Stanley. They separately invested some capital in Netscape. In 1994, Clark contributed additional 1.1 million in 1994 except initial investment, and Klenier, Perkings, Caufield & Byers also invested %5 million. Furthermore, Morgan Stanley also invested 18 million before IPO.
Q3
At the time of IPO, Clark, Kleiner Perkins, the group of media companies and the company’s president and CEO, James Barksdale owned the largest four stakes of Netscape’s equity at 24%, 11%, 11%, and 10% of the total equity respectively. The rest 44% belongs to the public. The ownership shares do not correspond to the initial investment for the reason that the investors gets what percent of shares at a ratio of their investments to the market value of the company at that time. For example, when one adds 1 million dollars to a firm whose market value is 1 million, this person gets 50% of shares. While another person adds 1 million dollar to the firm next year when the firm has a market value of 3 million dollar, he can only get 100/(100+300)=25% shares. Therefore, the investment will not be corresponded to the ownership shares.
Q4
Bonds
Bond can be a medium-term loan which is about three to ten years for Netscape. Issuing bonds is a flexible way for Netscape to finance. It can save much time to raise money and save more costs than issuing stock because business can finance from the market directly. Moreover, issuing bonds can generate a tax shield so that
