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Netscape down again

Netscape stock drops more than five percent despite a Morgan Stanley upgrade.

Shares of Netscape Communications (NSCP) lost 2-5/8 points today despite its raise in Morgan Stanley's ratings to "strong buy" from "outperform." The stock closed at 45-3/4, down 2-5/8 or 5.4 percent from yesterday's close. Two days earlier it plummented 18.5 percent on news of another brokerage lowering its recommendations.

Wednesday's precipitous drop was a result of William Gurley's downgrade of the stock to "accumulate" from "buy." Gurley, an analyst with Deutsche Morgan Grenfell, worried that Netscape would not head down its usual path and beat Wall Street's estimates when it reports its results for the fourth quarter.

The Internet company, best known for its browsers and server software, has in its short history tended to beat the street. For example, the company announced third-quarter profits of $7.7 million, or 9 cents a share--beating analysts' estimates of 8 cents a share. The result: Netscape stock popped up 12 percent.

Gurley, who was not available for comment, noted in his report that the company should still meet Wall Street's earnings expectations of 11 cents a share.

Although the stock has continued to drop, other analysts are holding firm on their estimates for the company.

"There's no change in our estimates. We still expect 10 cents a share for the quarter," said David Readerman, an analyst for Montgomery Securities. "As for our position, it's still a trading buy and we're generally advising accounts to accumulate the stock in the mid-40s but be less aggressive at higher levels."

Marshall Senk, an analyst with Robertson Stephens, also expects Netscape to make its earnings and does not project a light quarter, according to Emily Williams, Senk's assistant. Robertson Stephens rates the company as "buy" and estimates its quarterly results will be 12 cents a share.

Williams added that Senk, who relayed his comments while traveling, does not view DMG's expectations of a light quarter as valid.

Netscape officials were mystified by the downgrade. "Overall, his report has been somewhat puzzling to us," said Jennifer O'Mahony, a company spokeswoman. "His information is the same as what other analysts have, yet three analysts have reiterated their buy rating on us today, including Morgan Stanley and Goldman Sachs. It seems no one else shares his [opinion]."

Netscape plans to report its quarterly results on January 28.