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Netscape investors want more

The company's investors are generally upbeat about its strategy. But they still wonder why the stock isn't worth more.

MOUNTAIN VIEW, California--At their annual meeting here today, Netscape Communications' (NSCP) shareholders made clear that they are enthusiastic about the company's strategy and think its financials are solid.

But they can't help but wonder why the stock isn't worth more.

That was the main theme of the meeting at Netscape's headquarters, where the company outlined its general business position and tried to explain why the company's share price has dropped 62 percent in the past 12 months.

Investors who attended the meeting weren't hostile, but perplexed: Why doesn't Netscape's stock performance reflect a generally optimistic outlook for the Internet software giant?

Chief executive Jim Barksdale's explanation is that Netscape shares are a particular favorite among speculative investors who trade securities constantly in a practice known as "short-selling," keeping the stock on a perpetual roller coaster.

"I think we have a lot of momentum players in our stock," Barksdale said this morning. "We also have a high proportion of [short-sellers]."

Short-sellers account for roughly 20 percent of Netscape's investors, according to Quincy Smith, an investor relations manager for the company.

Netscape CFO Peter Currie added that the company's stock is broadly traded, which makes it easier for speculators to "short" the stock. "It's one of the great casinos," he said.

This explanation may have been small comfort to the investors gathered at company headquarters here this morning because it's entirely out of the company's hands.

Barksdale tried to temper those concerns with what he characterized as good news, specifically a gradual but definite shift in the company's sales to a more profitable mix.

Netscape now as an even three-way split in its revenues among client software, services, and server software. That's a slight shift from what the company reported as part of its first-quarter results, when client software accounted for 38 percent of revenues, services 25 percent, and server suites 37 percent.

"I think our services business provides great opportunities that we'll try to capitalize on and also the systems sales and support services that go with it are a great opportunity," Barksdale said.

Executives wouldn't make any forecasts for Netscape's coming quarters. But Curry said Wall Street is expecting earnings growth in the second half of the year, in part helped by the release of Communicator during the current quarter.

Netscape's shareholders--the youngest of whom is a 14-year-old named Brian Warner--generally agreed with this optimistic forecast and supported Barksdale's management of the company.

One thing that sits particularly well with investors is Barksdale's decision to forgo all but $1 in salary for 1997, an expression of his commitment to raising Netscape's stock price.

"This really demonstrates Jim's commitment to shareholders. We continue to be strong supporters of the company," said Irene Yu, an analyst for Amerindo Investment Advisers, which holds nearly a 4 percent stake in the company.

Meanwhile, a portfolio manager for another large institutional investor said Barksdale's gesture sends a strong signal that the CEO is optimistic for the company's future. "I think this is more a signal of what he thinks the prospects are for the company," the investor said.

Still, a lot of this enthusiasm is based more on faith than any indications from the stock itself.

Netscape closed at 29-1/2 a share today, down from its 52-week high of 75-1/4 in late May of last year. At the company's shareholder meeting then, the stock had already started a descent from its all-time high of 86 in late January of that year. But its drop was not as steep as this year's.

Barksdale defended the company's stock performance at a meeting with industry journalists yesterday.

"We're trading at much higher multiples," he said. "The price is like a roller coaster. The price has been up before, and it will go back up again."

Barksdale characterized Wall Street's view of the company this way: "We have 30 [analysts] who follow the company. Five think we're dead meat, but the other 25 think we are a big deal."

The portfolio manager agreed with Barksdale's favorite 25 analysts. "Microsoft is a tough competitor, but Barksdale is a bright man and has surrounded himself with bright people," he said.

Netscape reported first-quarter profits of $7.9 million on revenues of $120.2 million, compared with profits of $4.7 million on revenues of $55 million a year ago.

The company attributed its 114 percent revenue growth to strong server sales, highlighting the growth in its email and groupware areas.