Netscape Case Study

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This case is about Netscape Initial Public Offering (IPO) in 1995. Netscape had a successful starting in the market mainly because of their strategy of “Give away today and make money tomorrow”, which let them capture 75% of the web browser market, making it the most popular browsing software. The successful strategy consists in gaining its large market share by initially giving away its product for free. Netscape had to create a new industry standard to succeed in the long term, besides make revenues by selling server software to companies that require marketing access to potential consumers, by selling its software packages and through providing servers on the world wide web, consulting, maintenance, and support services. The success of…show more content…
Also the pressure to increase current earnings represents a disadvantage on going public. Netscape IPO is characterized as a “hot issue” market because of the high expected returns earned by initial buyers of the shares. Such desirable returns occur as a result of either underpricing or oversubscription of a company’s shares. The phenomena of hot issue market is explained by the high demand of the stock, making the price of the IPO increase from 14$ to 28$. Netscape should be concerned about underpricing because the market was highly increasing and also the competitors were growing as fast as the market did. Volatility and also uncertainty made the stock risky which increase the probability of underprice the stock, as it is the case with many IPOs. As we can see in the exhibit 6 the comparable companies has lower stock price. Netscape weas the leader in the product they were offering and they used this advantage. However, with new competitor in the market and including the risky position, 28$ could be consider a high price. We value the

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