Should Netscape Go Public to Satisfy Capital Needs
Should Netscape Go Public to Satisfy Capital Needs
Should Netscape go public to satisfy its capital needs?
Netscape does need to go public to satisfy its capital needs over the next three to five years. Netscape is in a position to capitalize on the consolidation of the technology sector. Further, they need to remain competitive against Micorsoft’s Internet Explorer. By taking the company public, Netscape will also be able to raise capital to expand its business, finance acquisitions, pay debt and have greater access to capital in the future
However, according to the article, Netscape is operating at a loss and expects to continue operating at a loss in the future. If this is the case, the company will need the funds to pay its bills. Netscape cannot pay its bills if it is losing money every year. The capital needs of the company are important, but based on Netscape’s financial statements, the overall financial health of the company is ailing, which takes precedent over capital needs. If Netscape is unable to meet its financial obligations, the company may soon find itself out of business.
Should an investor pay $28.00 / share for the Netscape IPO?
The IPO Price of Netscape increased from $14.00 / share to $28.00 / share because the demand for the stock is great. Although Netscape is running currently in the red, the forecasted earnings are positive and with the excess capital, the company will be able to expand their business and their profits. Therefore, an investor would want to pay the $28.00 / share if they are looking for a technology stock that is a pioneer in its field with great prospects. $28.00 / share would be the ground price, and unless the stock failed on the initial public offering, $28.00 / share could be the ground level to own it.
Netscape has surprisingly managed to stay afloat while sustaining financial losses. This is mainly due to the company’s ability to remain a leader in the industry through groundbreaking software and the continued services offered by the company. The additional funds available to Netscape once the company goes public will aid in expanding the business and once again increase Netscape’s market share. Once Netscape becomes profitable, the company will have the potential not only to generate enough revenue to invest in capital expenditures, but also pay handsome dividends to stockholders in the future.
Executive Opinion of IPO Pricing
Although the initial prospectus came out at $14.00 / share, a Netscape executive would want the greatest price the stock could fetch on the initial offering. As discussed in the article, the executives were initially hesitant because they did not want the public to think they were being greedy / opportunistic. However, if the public is demanding ownership of the company, and is willing to pay $28.00 / share, and the future prospects of the company after raising the capital for various growth measures look good, then offering the IPO price at $28.00 is justifiable.
As an executive at Netscape, we would recommend that the company continue with the proposed offering price of $28 per share however, we would also recommend that the company decrease the amount of shares initially offered for sale. This will increase the value of the stock to investors because now less stock is available, which would compliment the high cost of the stock. As mentioned in the article, an over allotment option is available if the demand for the stocks is strong and the company needs additional shares to offer.
Conclusion
Although Netscape will incur large costs from going public, the benefits of this decision far outweigh the costs. Netscape has substantial growth potential but in order for the company to move in an upward direction, it has to generate a sizeable amount of revenue to cover its current expenses and fund future endeavors. The choice for Netscape to go public is the most logical way for the company