Shares of the Internet software company fell as low as 36-1/2 in morning trading before ending the day at 37-1/4. That's down 2-3/8 from yesterday, when the market hammered it down 11 percent under trading volume of more than twice the average day's 3 million shares.
Netscape, which posted strong revenue growth and profits, excluding one-time acquisition charges, has indicated it plans to heavily reinvest in research and development, along with sales and marketing. That has given Wall Street concern that the company may no longer be able to greatly expand its profit margins.
Analysts have dropped their fiscal 1997 earnings estimates to 48 cents a share from 52 cents, according to First Call. The lowering of estimates came yesterday; Netscape reported its second-quarter results after the market's close on Tuesday.
One analyst, however, upped the earnings estimate by 2 cents, said Chuck Hill, a First Call spokesman. The revised range of estimates span from 41 to 51 cents a share.
Some analysts who were already bearish on the stock, like Volpe Brown Whelan & Company's Charles Finnie, said unexpectedly high spending will disappoint investors who had hoped for expanding profit margins on new products.
"We believe it's the last rabbit they can pull out of a hat," he said of Netscape's second-quarter results. "While we admire the company and we admire its vision, we think the stock is wildly overvalued."
Meanwhile, analyst Bruce Smith with Merrill Lynch said in his report that the company has indicated its operating margins are not expected to expand as rapidly as anticipated; that could be an issue going forward.
He added, however, "Netscape exceeded revenue expectations with its strong services and good introduction of Communicator."
Netscape reported revenues of $135.2 million for the quarter, up from 75 million a year earlier. Those results took many analysts by surprise on the upside.
The company post net profits of $8.8 million, or 10 cents a share, excluding one-time acquisition charges--a 52 percent increase from $5.8 million, or 7 cents a share, a year ago.
Reuters contributed to this story.