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NetWhere: Is Novell the Rodney Dangerfield of Internet Software?

If Novell (NASDAQ:NOVL), which has the world's largest installed base of networked users at 70 million, had half the marketing finesse of startup Marimba, a company with few users but plenty of media exposure, then perhaps the stock would take its place among the leaders in the software space.

Of course sales and earnings growth would help much more.

Despite having one of the best minds in the Internet space--Dr. Eric Schmidt, who was Sun Microsystems chief technology guru before joining Novell last April--Novell just doesn't seem to get the kind of respect on Wall Street that rivals with one-tenth the products and one-one-hundredth of the experience receive.

In April 1996, NOVL shares were slightly more than $15 each. February 26 they closed at $10. The latest:

Novell By The Numbers

Novell NOVL
  (millions)
Shares out fully-diluted 352.97
Price 02.26.98 $ 10.00
Market cap $3,529.71
Less working cap $1,155.06
Plus long-term debt nil
= Enterprise value $2,374.65
Enterprise value per share $ 6.73
   
1Q to 01.31.98 sales $ 252.04
Vs. 1Q97 sales $ 374.85
Percent difference -33%
Net income 1Q98 $ 14.09
Vs. 1Q97 net income $ 50.81
Percent difference -72%
1Q98 EPS $ 0.04
Fiscal 1997 sales to 10.31.97 $1,007.31
Fiscal 1996 $1,374.86
Percent difference -27%
Net income 1997 $ (78.30)
Net income 1996 $ 71.04
Percent difference -210%
Net income without charge $ (23.30)
Percent difference -133%
   
© 1998 Mecklermedia  

For full fiscal year 1997 ending October, Novell posted about $1 billion revenue and a net loss of $78 million or ($0.22) per share. The company's third-quarter restructuring charge of $55 million contributed ($0.10) per share, after tax, to the loss. Notably, a $150 million loss before taxes.

Sales dropped 33% in the first quarter ending January 31, 1998 vs. 1Q97, even as Novell squeezed out $0.04 earnings per share, a sign of internal cost cutting.

Perhaps it's a message thing. Novell seems to have all the right stuff: products, installed base, and strong technology. Still, it has soft sellthrough vs. the past, despite reporting more users. In 1996 Novell software users stood at 55 million users of NetWare or related applications. Today it's more than 79 million--Microsoft, Netscape, or Sun drool at the prospect of those numbers and spend millions to try and get to that point.

Since 1996, Novell's been chanting Vint Cerf's favorite ZENism "Internet Protocol (IP) on Everything," taking the formerly proprietary NetWare into more open TCP/IP waters. Novell's aggressive move to NetWare 5 affirms that strategy with its built-in Java Virtual Machine, objects and "not even Microsoft can touch this" leading-edge directory services. Novell's is the no-brainer that's easy to manage. With NDS you can manage the entire intranet environment, click, click, click.

But it hasn't clicked yet with investors, the same ones that push Microsoft (NASDAQ:MSFT) to $200 billion market capitalization, while Microsoft wants to be Novell in the network space.