Investors Get Caught Up in the Netscape : Wall Street: Software company makes an impressive debut, with more than 13.8 million shares changing hands during frenzied trading.
Wall Street has fallen in love with the Internet.
In one of the most impressive debuts the Street has ever seen, investors Wednesday frantically snapped up shares of Netscape Communications Corp., the 15-month-old Mountain View, Calif., company that makes software for browsing the Internet. During its first day of trading, Netscape’s share price rose as high as $74.25 from the initial $28 announced Tuesday, before settling down to $58.25 per share by market close.
More than 13.8 million shares changed hands during frenzied trading, meaning the 5 million Netscape shares initially offered turned over twice.
Even with the price drop late in the day, analysts said Netscape had the fourth-biggest first-day increase in trading price in history.
“It was orgasm du jour , as they say on the trading floor,” said one investor who declined to be named. “The stock was running up a point and a half between trades.
“It’s lunacy,” he said.
The debut is even more amazing considering that Netscape had modest revenue of $16.6 million in the first six months of this year and has never turned a profit.
Even Microsoft Corp.'s initial public offering in 1983, during the initial personal computer craze, did not create the sort of mania caused by Netscape’s.
Netscape boosters were taken aback. “Was I surprised that it went to $70 right from the start? Yes,” said Roger McNamee, manager of Integral Capital Partners of Menlo Park, Calif., and a Netscape investor.
“Wall Street’s always been a balance between fear and greed, and this morning greed won,” he said.
Netscape’s total market value, including Wednesday’s offering and shares held by executives and early investors, would be $1.9 billion at the closing price, about the same as Dole Food or software maker Intuit Inc.
Investors said the Netscape offering may spell the end of a two-year bull market for technology stocks.
McNamee fears a backlash that will cause the stock’s price to drop as precipitously as it rose. “How successful do they have to be to justify this kind of valuation?”
Meanwhile, with the threat of the Justice Department blocking the release of Windows 95 now over, PC software giant Microsoft Corp. gained $6 to close at $96.50. The Microsoft Network--to be included as part of Windows 95--also has an Internet browser.
The prospectus, the document providing detailed financial information on a company filing for an initial public offering, had originally stated an initial price of between $12 and $14 per share. Demand became so intense that Morgan Stanley & Co., the lead underwriter for the offering, raised the price three times to $21, $24 and eventually $28 and also increased the number of shares to be sold from 3.5 million to 5 million. In the weeks since the initial public offering was announced, the investment bank has been flooded with calls.
But in a deal this hot, only the elite--pension and mutual funds with large sums to invest who are Morgan Stanley’s preferred customers--were given the opportunity to buy.
Why all the fuss? The Internet, the confederation of about 35,000 computer networks, is red-hot. According to market researcher International Data Corp. in Cambridge, Mass., about 200 million people will use the Internet by 1999 to shop, play games or look up information from its vast databases. It is expected to generate about $4.8 billion in revenue by 1998.
Netscape’s software, created by graduate student Marc Andreessen and several of his classmates at the University of Illinois at Urbana-Champaign, makes the Internet easier to navigate.
Andreessen, 24, became something of a cult figure in cyberspace for the software, then called Mosaic, which he made available for free on the Internet.
He attracted the attention of James Clark, 51, a former Stanford computer science professor and the founder of workstation manufacturer Silicon Graphics Inc. Clark persuaded Andreessen and six of his classmates to leave school, license the program from the University of Illinois, which still owns the rights to the software, and invest $5 million to get the company off the ground.
With Clark as chairman, Netscape had legitimacy and was able to attract other investors such as Silicon Valley venture capitalist John L. Doerr, Adobe Systems Inc. Chairman John Warnock, Tele-Communications Inc., Knight-Ridder Inc., Hearst Corp. and Times Mirror Co.
An estimated 7 million people use Netscape to browse the Internet, giving it about a 70% share of the market. Most of that software was given away for free. Netscape’s strategy is that of a razor company: Give away the razors, but make the money from the blades.
Netscape makes software for Internet servers, the computers that are the repositories of information. That software costs between $1,000 and $5,000. Netscape hopes that the success it has had so far with Internet browsing software will create demand for its server software since the two work best together.
But PC software giant Microsoft has designs on Netscape’s market. Microsoft will release the Microsoft Network--which includes an Internet browser--with Windows 95 on Aug. 24. And Microsoft has Blackbird, software for Internet servers, on which it is putting the finishing touches for a mid-1996 debut.
But for now, Andreessen and Clark can bask in the limelight.
The two treated Wednesday as an average workday, conducting meetings with their programming team. But by the end of the trading day, Clark’s shares were worth $565 million, making him one of the richest people in the United States.
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A Hearty Welcome
Investors more than doubled the stock of Netscape Communications Corp. on the first day the software firm was traded. Here’s a look at the company’s finances and how this initial public offering ranks:
Company name: Netscape Communications Corp.
Headquarters: Mountain View, Calif.
Chairman: James H. Clark, co-founder
Key product: Navigator software, used for browsing the World Wide Web
Earnings: $1.61-million loss on $11.9 million in revenue for second quarter of 1995.
Biggest-gaining IPOs on first day of trading:
Issuer Offer date % gain 1. Boston Chicken 11/8/93 142.5 2. Home Shopping Network 5/13/86 136.8 3. Tivoli Systems 3/10/95 119.6 4. Netscape 8/9/95 108.0 5. Baby Superstore 9/27/94 93.0
Sources: Associated Press, Securities Data Co. * GETTING BURNED: Netscape trading illustrates risk in IPOs for small investors. D5