The irony of AOL’s acquisition of Netscape is that the firm that made the
browser a household word and selected its mascot name “Mozilla” (Microsoft
killer) may come around as AOL-Netscape these four-score Internet years
later as the biggest threat Microsoft has ever seen.
The numbers first: the deal price of $4.2 billion targets the revenue
multiple at 6.8x annualized or about 5x our estimated Netscape revenue for
1999. On a Web site value per user basis the deal could be $268. The
combined company would generate about $4 billion revenue or trade about 11x
annualized revenue for the two of them. Let’s take a look:
Netscape | AOL | TOTAL | |
Latest quarter revenue | $ 150 | $ 858 | $ 1,008 |
of that, Web Site revenue | $ 39 | na | |
Earnings (losses) | $ 0 | $ 108 | $ 109 |
Annualized revenue | $ 601 | $ 3,432 | $ 4,033 |
Market cap 11-23 | $ 4,174 | $ 40,889 | $ 45,063 |
Revenue multiple | 7 | 12 | |
Website users | 16 | 22 | 38 |
Estimated Website value | $ 2,750 | $ 3,870 | $ 6,620 |
WEBDEX Web Site user value | $ 175 | $ 177 |
1998 Internet.com
One step further, however, and we think of the overall deal value that AOL
may be paying $2.75 billion for Netscape’s Web site Netcenter, based on the
search and directory stock comparables.
That values Netcenter users at
$175 each, or about what it would cost AOL to market and land two new
subscribers to AOL’s online service. On a revenue multiple basis, Netcenter
at $2.75 billion would be 18x annualized Web site revenue, using Netscape’s
latest quarterly results. For the three-months ending July 31, Netcenter
posted $39 million revenue.
Relatedly, at the anti-trust hearing
Microsoft is going through, Microsoft may use the proposed AOL-Netscape
deal as an example of how the industry cannot be monopolized by it or
anyone or how another firm can make land grabs while it cannot. Netscape
may come up with its own spin: Microsoft forced a merger in order for
Netscape to survive the long haul. Court room drama aside, here’s why a
deal makes sense:
Benefits for AOL:
driving AOL proper into anything other than the “me too,” wannabe portal
player space. Netscape Netcenter has always been a Web destination and
Netscape is the top brand associated with the Internet.
usage but not business, an area where Yahoo dominates. With Netcenter AOL
would be the clear leader, something it can bundle with its Compuserve unit
which also favors businesses.
Web sites. Recall that Microsoft just acquired Link Exchange, a Web ad
network. If AOL acquires Netscape AOL will have a business network to feed
into and from. Tremendous commerce potential there.
platform and rely on thousands of Web developers to upgrade
Navigator/Communicator free as the browser replaces AOL’s own homegrown and
clunky interface in favor of the open HTML standard.
than 50 million users of various flavors of Netscape’s browser globally.
Add to that AOL’s 21 million registered users of instant chat service ICQ.
Suddenly AOL could be the ‘Microsoft’ of the Internet with the largest
installed user base anywhere.
a box, MSN, which like the rabbit, just keeps on going and going and going
with $17 billion of batteries (Microsoft’s cash).
(NASDAQ:ATHM), the cable industry’s best chance at becoming an Internet
access powerhouse via its high-speed coaxial lines. @Home has a lock on a
majority of cable TV homes with its multiplicity of deals with the largest
cable operators in the U.S. This may be a big one since AT&T is acquiring
TCI and its equity in @Home. With Netscape, AOL inherits the front end to
the cable Internet world. This alone could be a very valuable asset.
Benefits for Netscape:
everything Internet.
enterprise software and Web site content services is or isn’t.
prophetic than even Marc Andreessen or Jim Clark may have realized. It’s
not over ’til the big lizard sings.
Attention Internet Startups! LaunchPad West StartUp
Pavilion, part of Spring Internet World ’99, one of the world’s
largest Internet industry trade shows offers exhibit space for startups
ONLY at a reduced price in order to meet their often limited capital
available at the startup stage. Contact Sean Moriarty (hurry, space
limited): mailto:moriarty@mecklermedia.com
