Netscape Application Server Essay Example

multiples analysis. This is due to both the shortage of genuine comparables for Netscape and the fact that negative earnings and operating cash flows were present during the time of the offering. However, utilizing a series of assumptions detailed in Exhibit 1N, it is estimated that Netscape must grow at an annual rate of roughly 55% over ten years to justify a share value of $28 while assuming a discount rate of 12%. As such, whether or not Netscape can attain this growth target will greatly impact its current value.

The growth rate projections suggest that Netscape will break even by 1998 and earn a total of $1.3 billion in revenues by 2005. Had the company maintained an annual growth rate of 71%, its first-day stock price of $73 would have been justified, resulting in revenues of $3.5 billion by 2005. Nonetheless, due to uncertainties surrounding Netscape's future performance, the assumptions made in the valuation model cannot be entirely relied upon.

The potential for growth is the primary value of Netscape, outweighing its current assets and cash flows. Investors who choose to invest in Netscape are essentially investing in the future of the internet industry, where success can be highly lucrative but also uncertain. A successful performance by Netscape could lead to significant prominence within the industry, possibly even challenging Microsoft's dominance.