Pinocchio, Snow White, and Aladdin had their wishes. In the high-tech world, this might be Netscape's (NSCP): "Hey Wall Street, why not value me as an Internet directory, not an enterprise software provider?"
According to a filing with the Securities and Exchange Commission, the company's Web site revenue stood at $95 million last year, 1.5 times larger than that of Yahoo (YHOO), a company that dedicates itself entirely to its Web site. But while Yahoo's stock is running with the bulls, Netscape's is stuck near a 52-week low, and many analysts are neutral on the stock, at best. Yahoo's market cap now stands at $4.26 billion, compared with just $1.85 billion for Netscape.
Netscape's Web site revenue continues to grow, however, at least annually, according to figures provided in the "10K" filing with federal regulators.
"Web site revenues for 1997, 1996, and 1995 were $95.1 million, $23 million, and $1.8 million, or 17.8 percent, 6.7 percent, and 2.1 percent of total revenues, respectively," the filing said, adding, "The increases in both absolute dollars and as a percentage of total revenues in all years were due to increased Web site transactions, which include Web advertising; search and directory services; trademark licensing; and other Web services."
Netscape still sees the enterprise market as its key driver of revenues--and it's no wonder. Enterprise revenue stood at $333.2 million, or 62 percent of the company's total, for last year. The increase is due to an "expanded product line, higher average transaction sizes, and general growth in the market for intranet-related software products," according to the filing.
But as the Netscape morphs into a different company now that it is handing out its Internet browser for free, the Web site--dubbed Netcenter--becomes a key element of the profit picture.
Indeed, Netscape executives are trying to get Wall Street interested in its Web site strategy. As reported last week, Netscape said it was forming a new unit to focus exclusively on its Web site, which will have a dedicated group of sales, marketing, and operations personnel.
Within the next two months, Netscape is expected to detail partnerships that will make it a full-fledged Internet portal site. The site's features include ecommerce, software downloads, content, and community. It also is expected to add free email and personalization in the future.
But executing the strategy is easier said than done, and, as with its other businesses, Netscape can't seem to escape the octopus-like tentacles of Microsoft.
"Netscape Netcenter competes with various Microsoft-owned Web sites that Microsoft has indicated it may unite into a single site under a program called 'Microsoft Start.' Microsoft Start may become the opening screen for Windows users or operate in some other fashion that promotes Microsoft's products and Web site," the filing said. "In addition, Netscape believes that Microsoft may be using co-marketing funds and other inducements to have Web sites developed exclusively for Internet Explorer or using technology that may only accessed by Internet Explorer."
Another risk: "A significant decline in Netscape's share of the browser market could reduce not only Netscape's remaining browser revenues, but also reduce demand for Netscape's server products and traffic to Netscape's Web site."
In the filing, Netscape calls the Web site market "intensely competitive," and says the pressure could result in significant price competition and reductions in Web-based revenues.
Also revealed in the 10K filing:
"In the past years, there have been several instances in which weaknesses or vulnerabilities in Netscape's security implementation were discovered." In each instance, Netscape made design changes that "appear to have resolved" known security vulnerabilities.
Research and development expenses were 24.4 percent of total revenue last year, compared with 24.2 percent in 1996, and 31.4 percent in 1995. The decrease was due to the total increase in Netscape's revenue base.
In July 1996, Netscape committed $4 million to the Java Fund. As of December 1997, about $1.8 million was invested.
"As it has previously stated, while Netscape expects to incur short-term operating losses as it realigns its business model, Netscape believes it is well-positioned to return to profitability."