Case Notes/Answers
Netscape's Initial Public Offering, By W. Carl Kester,
Kendall Backstrand
Discussion Questions:
1. To examine the strategic and financial decisions of a young and rapidly growing
company.
2. To evaluate the costs and benefits of becoming a publicly-owned corporation.
3. To introduce students to the institutional processes and common practices involved in
an initial public offering.
4. To expose students to the venture capital business.
5. To assess the suitability of using conventional discounted cash flow techniques to value
rapidly-growing high-technology companies with short operating histories.
, Netscape's Initial Public Offering
Teaching Note
Substantive Issues
On August 9, 1995, Netscape Communications Corporation went public with an initial public
offering (IPO) of 5 million shares priced at $28 per share. In an extraordinary day of trading, the
company’s newly issued shares soared to $73 by mid-day before closing at $54 — a nearly 100%
increase in value in a single day of trading. This dramatic episode and the events leading up to it
provide a setting for discussing IPOs as a financial execution decision, and for exploring the problems
associated with the valuation of small, rapidly-growing high-technology stocks for which there are
very few comparable companies to benchmark against.
Pedagogical Objectives
1. To examine the strategic and financial decisions of a young and rapidly growing
company.
2. To evaluate the costs and benefits of becoming a publicly-owned corporation.
3. To introduce students to the institutional processes and common practices involved in
an initial public offering.
4. To expose students to the venture capital business.
5. To assess the suitability of using conventional discounted cash flow techniques to value
rapidly-growing high-technology companies with short operating histories.
Opportunities for Student Analysis
The case text makes it plain that there is considerable investor interest surrounding
Netscape’s IPO. Indeed, Netscape was one of the most talked-about young software companies of
1995 even before the IPO. Although most students today will be familiar with Netscape’s products, a
good way to build a shared understanding of the company’s business is to ask what all the
excitement is about. What does Netscape do, and why is it so valuable in investors’ eyes that they
1
Netscape's Initial Public Offering, By W. Carl Kester,
Kendall Backstrand
Discussion Questions:
1. To examine the strategic and financial decisions of a young and rapidly growing
company.
2. To evaluate the costs and benefits of becoming a publicly-owned corporation.
3. To introduce students to the institutional processes and common practices involved in
an initial public offering.
4. To expose students to the venture capital business.
5. To assess the suitability of using conventional discounted cash flow techniques to value
rapidly-growing high-technology companies with short operating histories.
, Netscape's Initial Public Offering
Teaching Note
Substantive Issues
On August 9, 1995, Netscape Communications Corporation went public with an initial public
offering (IPO) of 5 million shares priced at $28 per share. In an extraordinary day of trading, the
company’s newly issued shares soared to $73 by mid-day before closing at $54 — a nearly 100%
increase in value in a single day of trading. This dramatic episode and the events leading up to it
provide a setting for discussing IPOs as a financial execution decision, and for exploring the problems
associated with the valuation of small, rapidly-growing high-technology stocks for which there are
very few comparable companies to benchmark against.
Pedagogical Objectives
1. To examine the strategic and financial decisions of a young and rapidly growing
company.
2. To evaluate the costs and benefits of becoming a publicly-owned corporation.
3. To introduce students to the institutional processes and common practices involved in
an initial public offering.
4. To expose students to the venture capital business.
5. To assess the suitability of using conventional discounted cash flow techniques to value
rapidly-growing high-technology companies with short operating histories.
Opportunities for Student Analysis
The case text makes it plain that there is considerable investor interest surrounding
Netscape’s IPO. Indeed, Netscape was one of the most talked-about young software companies of
1995 even before the IPO. Although most students today will be familiar with Netscape’s products, a
good way to build a shared understanding of the company’s business is to ask what all the
excitement is about. What does Netscape do, and why is it so valuable in investors’ eyes that they
1
