Why Has Netscape Been Successful to Date? What Is Its Strategy? How Risky Is Its Current Competitive Situation?

1. Why has Netscape been successful to date? What is its strategy? How risky is its current competitive situation?

Netscape’s success is attributed to Netscape’s competitive line of products that are known as the user-friendly ‘click and point’ graphical user interface and the ‘surfing the net’ web. Furthermore, Netscape serves both sides of the market by creating browser for its clients, E-commerce application as well as providing service for companies. On the other hand, the type of industry that Netscape involved in is a fast-pace growing industry since the 1990s signaled by the dotcom era and which contributes another effective factor to success.

Netscape followed the strategy of ‘give away today and make money tomorrow’. This was described as giving the browser for free and selling server software to companies that wanted marketing access to potential consumers. Netscape also challenged itself with the setup of a new industry standard by creating new program to compete with its rivals.

Given by the industry equity beta of 0.73 we assume the industry is not risky. However, the current competitive situation is intense given by the existence of formidable rivals such as Microsoft, Spyglass and America Online in addition to newcomers in this industry. To dominate the market, Netscape will need to strive for more product innovations and high quality service offerings.

2. Value Netscape.

Based on the calculation, the total NVP of Netscape is approximately $291 million, and this amount will be divided by total shares of 5 million, which leads to per share price of $25.61. Therefore, the current share price of $14 is undervalued. With the forecast figures for the next 10 years, the share price of Netscape is suppose to increase by $11 per share higher which has consolidated the confidence to double the stock price.

3. How fast does Netscape have to grow on an annual basis over the next 10 years to justify the $28 offer price?

The question is to seek the growth rate that covers the new market value with $28 offered price. The total equity value of Netscape is 28*5million/44% which leads to

$318 million. However, as the underwriters undervalue the stock price, say in this case we estimate 20% as the underpricing ratio. Therefore, Netscape’s market value should be $381 million. Thus, we will need to find the growth rate that meets the market value.

Table of Calculation needed!!!

4. What sources of capital other than the public equity markets could be tapped to satisfy these capital needs?

In general, in order to satisfy the capital needs, we may list the alternative