Mozilla Killa: Netscape, Give It Away, & Grow
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Like Jack Nicholson we're wondering if Netscape Communications has seen "as good as it gets" as in better days? With the software war with Microsoft clearly going against it, perhaps a new direction (or an old one ignored) may be in order.
Emphasis on "Communications" could provide some much-needed energy into a Mozilla that hardly seems able to scale tall buildings anymore in the entrenched battle to gain desktop leverage. But we think part of the future may lie in communications, not computer code.
Anecdotal evidence arrives via Netscape's announcement January 5 that its fourth quarter will be a money loser to the tune of about $89 million. On that dismal prospect Netscape (NASDAQ:NSCP) shares fell, in large voluminous chunks on NASDAQ, more than 20% to $18.56 each.
Granted, some $52 million was for nonrecurring merger-related charges, while an additional $35 million went for restructuring. Excluding charges Netscape said it would post a loss between $14 million to $18 million. Either way the run for the exits was a stampede.
All of which highlights Netscape's apparently losing battle with a product, Internet Explorer, given away by its rival Microsoft (NASDAQ:MSFT). You cannot compete with free giveaways. And you cannot cry foul if you also built your business on giving away your own product free, Navigator, but now charge for it since it's a large part of revenue--about 13%.
Despite the best laid plans of lice and lawyers (or mice and men), the Department of Justice trying to stop Microsoft seems to be akin to a porch full of banjo players trying to stop Burt Reynolds from filming "Deliverance." Wrong set and wrong battle.
Microsoft's been tweaking software for 20 years, has billions to toss around and an installed base to boot, and knows the tune. Internetizing its Office application suite is threat enough to anyone in the Internet software game, let alone popping out a browser melody.
Netscape's Numbers: Up?
|x share price Nov 5||$18.56|
|= Market capitalization||$1,795.74|
|Sales and Income/Loss|
|4Q 1997 revenue estimate||$128.00|
|4Q 1997 loss estimate||-$87.00|
|4Q 1997 loss per share estimate||-$0.91|
|4Q 1997 loss excluding non-recurring costs||-$16.00|
|4Q 1997 loss per share without costs||-$0.17|
|Projected 1997 revenue||$536.00|
|Projected 1997 loss||-$115.00|
|Estimated 1997 earnings excluding costs||$9.00|
|Estimated 1997 EPS excluding costs||$0.10|
|Market cap/1997 revenue||3|
|Price/1998 EPS if growth @ 20%||155|
|Note: All figures in millions except share price|
|EPS and multiples|
|© 1998 Mecklermedia Corp.|
While we have believed for quite some time in the built-in leverage that Netscape enjoys, we're waiting for ample evidence that the emperor knows he's still clothed.
The short answer: Netscape may have a greater chance at being a powerful media company along the lines of AOL and Internet navigation hubs Yahoo! (NASDAQ:YHOO), Lycos (NASDAQ:LCOS), and Excite (NASDAQ:XCIT). Content is the ultimate software.
We estimate total Netscape browser users at about 20 million. That's twice as many subscribers to AOL. On a daily basis MediaMetrix reports Netscape unique users in the 11 million range, making it number three on the Web behind Yahoo! and Microsoft.
Yet Yahoo!'s market cap is much higher than NSCP because there are no apparent bulldozers or steamrollers roaring in its path as in Microsoft vs. Netscape. We think the Yahoo!, Lycos, and Excite battles with Redmond are still to come, however, as Microsoft, which just acquired HotMail, already has WebTV, and buys into cable, keeps reinventing itself as a content company. (Expect $1 billion investment in world's largest cable operator TCI any day now.)
Netscape's early lead in 1995 was based on a free browser. Download it and you were on your way. That ploy revolutionized the Internet and software industry more than any other and paved the way for "free" services from the entire content sector, many new software startups, and opened up advertising as a way for companies on the Web to produce revenue, as well as much much more.
So perhaps Netscape must return to its roots and stop playing Microsoft wanna-be. AOL may have it the best by selling its membership base to value-added marketers. Tel-Save plopped down $100 million to market its long-distance services to AOLers. Amazon, Barnes & Noble, Intuit, CUC, Travelocity, all pay millions to reach members of it and various Web services.
What does it mean? Netscape as a "communications" company in the media sense of the word, offering free email, discounted IP telephony, membership benefits for e-commerce, travel services, etc. Group affinities together and create communities of commerce.
The browser is the pretty face, the real estate. The browser is Netscape. Build a business model around the millions of users that are already there.
Three words to Netscape's future if it wants to get beyond critical mass into e-business chain reaction: Give it away.