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Netscape revenue up 114%

The Internet software company posts solid first-quarter earnings, attributing a 114 percent growth in revenue to strong server sales.

Netscape Communications (NSCP) today posted solid first-quarter earnings, attributing a 114 percent growth in revenue to strong server sales.

The company also more than doubled its net income from the same period the year before.

Revenues for the quarter ending March 31 totaled $120.2 million, a 114 percent increase over the $56.1 million reported last year. Netscape's net income for the first quarter 1997 came in at $7.9 million, or 9 cents per share, compared with $3.6 million or 4 cents per share for the same quarter last year. That slightly beats analysts estimates of 8 cents per share, according to a consensus of analyst projections collated by First Call.

"Netscape's server business continues to grow, especially in the email and groupware arena, positioning us well for the scheduled release of Netscape Communicator and SuiteSpot 3.0 in the second quarter," said Netscape president and CEO Jim Barksdale in a statement.

The results indicate that Netscape's revenue profile has changed dramatically.

First, its client software business, previously its biggest moneymaker, fell from 51 percent to 38 percent of total revenue. On the other hand, revenue from services--which includes money generated by Netscape's highly trafficked Web site--increased from 16 percent of the company's total revenues last quarter to 25 percent this quarter.

In addition, Netscape's server business accounted for a larger share of its revenues this quarter, 37 percent instead of 33 percent as during the previous quarter.

The company has long predicted that its server business would become a bigger part of its business. "We continue to think the market opportunity is significant and we feel terrific, particularly about the new releases [of SuiteSpot and Communicator&93; that are in final beta cycles today and that will be released this quarter," said Barksdale in a conference call today.

Barksdale added that new corporate customers such as BITAL, Deutsche Telekom, Hamilton Standard, Rockwell, Thomas Cook, and others helped bolster revenues for the quarter.

Netscape closed today at 27 1/2, up 2 1/2 points from yesterday.

Analysts hadn't expected--and didn't get--any dramatic surprises. "They are in a product transition state, so we expect them to show new customers. They are becoming one of the leading suppliers of enterprise/Internet software," said Daniel Rimer, who follows the company for Hambrecht & Quist, the high-technology investment banking firm.

But some analysts do have concerns for Netscape's long-term prospects. Volpe Brown Whelan began rating Netscape for the first time yesterday with an "underperform" ranking based on an assessment of the long-term risk of holding the stock. But even Volpe had expected Netscape to meet its 8-cents-per-share estimate for this quarter, according to analyst Charles Finnie.

"As far as browser and server sales, the jury is still out. It's not clear whether the dogs are eating the dog food," said Finnie.

On top of fighting a tough battle with Microsoft for the browser marketplace, Netscape has been making a big push into the corporate software market. It also is gearing up to launch a product called Netcaster, which "pushes" content to PCs automatically.

"The next two years are going to be much more difficult for Netscape than the last two years," Finnie said. "When they started, they effectively had no competition. Now they are entering an area of more complex, mission-critical products and competing against well entrenched, better-financed behemoths."

In the meantime, however, analysts also expect Netscape to generate substantial ad revenues from its Web site. Netscape last month struck a deal with Yahoo to manage its Destinations page, one of the most frequently visited pages on the Net, which will be renamed Netscape Guide by Yahoo.