Netscape Case
This case is about the Initial Public Offering (IPO) of Netscape Communications Corporation which was founded in April 1994. The main players to start this company were Marc Andreessen, the founder of Mosaic, and Jim Clarke, the founder of Silicon Graphics. Netscape entered internet market via the Web browser market and within no time they set the new industry standards and by spring 1995 they succeeded in capturing 75% of the web browser market.
Netscape provide a comprehensive line of client, server, and integrated applications software for communications and commerce on the internet and private Internet Protocol (IP) networks.
But among all products provided by Netscape, their most popular product was Netscape Navigator which allows individual personal computer (PC) users to exchange information and commerce on the internet. It gained high popularity because of user-friendly interface and offered variety of internet functions to the customers. Netscape navigator generated 49% and 65% of total revenues for the quarters ended March 31, 1995, and June 30, 1995, respectively.
With the rapid growth of Netscape and increasing demand in this sector, there was also increase in the competition with Spyglass being their closet competitors. There were also other competitors such as Microsoft, America Online, Prodigy and CompuServe who may compete for the Netscape market share in the long term.
Hence, to grow faster than their competition Netscape needed funds and they planned to go for IPO. So, on July 17, 1995 initial offering of $12 to $14 per share was decided. But later on underwriters proposed to increase it $28 per share.
Now, the board members of Netscape have to decide whether to accept or reject the increase in price of shares. Increase in price of shares has both its pros and cons, and the new valuation might be wrong as such incidences have happened many times in the past.