Netscape’s Initial Public offering

Netscape’s Initial Public Offering

Why would investors want to participate in the IPO of an unprofitable business such as Netscape?

Netscape Communications Corporation provides a comprehensive package of client, server and integrated application software for communication and commerce on the internet. The unique selling proposition of Netscape is the enhanced security code which allows businesses to execute financial transactions and sell advertisements on the Internet. It also has developed many user friendly features including click-and-point graphical user interface that became popular in those times. Netscape generated 49% and 65% of total revenues for the first two quarters of 1994. Netscape is trying to develop a huge customer base by providing free browser to all and focus revenue generation by selling servers and allied software to corporates. As it appears, it mainly intends to generate profits through the sale of Navigator browser and server software to corporates.  It is trying to take a first mover advantage by providing browser to everyone and capture the user pool. Moreover, it tried to push the servers and allied products to corporates anticipating dominance in internet commerce platform.

Netscape is relatively a new company and did not have enough resource pool like other technology companies including IBM, Microsoft, etc. These big giants had huge credit, hardware and human capital resources. On the other hand, Netscape didn’t have any such resources at that point. Moreover, they have huge operating experience which gives them an edge over Netscape. Furthermore, Netscape’s business model is easy to replicate by these giants indicating that its business model has no barriers to entry. Also, there is buzz in the market that Microsoft would probably introduce a browser along with its Operating System. This is a potential threat to Netscape’s model in the foreseeable future. However, it also depends upon performance of the Netscape browser and how much it penetrates into the market before Microsoft makes this move.

Given the technology environment then, Netscape IPO is a very good investment to participate because there were no signs of competitive product in the near future. Moreover, all the recent technology company IPOs very successful resulting in significant profits to the first day trading market. Both risk averse and risk taking investors can take part in the IPO and demonstrate their risk taking nature by the amount of shares they purchase. Investment banks and other corporations can invest in Netscape IPO as it would definitely result in profits in the short run. Moreover, investors should be aware of the fact that Netscape is a new company and can’t expect any returns in the form of dividends. Furthermore, as Netscape is a new company which is yet to prove itself, there is still certain degree of uncertainty in Netscape’s long term business model. Therefore, Netscape would be a good investment for investors who can take some risk now and purchase the shares on IPO and later trade them shortly for a higher value.