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November 24, 1998

NETSCAPE BEATS THE STREET AND A RETREAT

By CBR Staff Writer

Netscape Communications Corp’s last set of a results as an independent company released yesterday were a messy affair, mainly because of the company’s decision in February to shift its fiscal year-end from December 31 to October 31. Nevertheless, without all the charges, net income for the quarter was $4.2m, or four cents a share and Wall Street was expecting three cents, according to First Call. The company announced yesterday that it is to be acquired by America Online Inc for $4.2bn in stock and that Sun Microsystems will distribute Netscape software and jointly develop the next generation of Netscape client and server products. By shifting its year-end and reporting the first quarter as the first four months of this year, Netscape managed to isolate January – a month in which it contrived to lose $54.2m on revenues of just $8.3m, fired 20% of its workforce, and announced that it would give its browser away for free. Therefore any figures published this year will be skewed. Netscape said at the time that it changed its year to put it in line with other major hardware and software vendors that target large customers, which must have been news to most of them. Cutting through the fiscal chicanery, Netscape’s ‘fourth quarter’ ending October 31 showed net profits down 74% at $2.7m, against the third quarter ending September 30 last year. In the previous quarter this year, Netscape turned in net profits of $88,000. However, it should be noted that both this quarter and the previous one were greatly enhanced by interest income – without it Netscape has operating income of $900,000 this time and operating losses of $2.1m last time. Revenues this quarter were $162.0m, up 8% from the $150.2m recorded in the previous quarter. The main source of growth, such as it is, comes from the Netcenter portal with revenues increasing 24% on a sequential basis to $48.0m. Revenues from enterprise software and service edged forward 2% to $114.0m in the quarter. International sales grew, accounting for 13% of he total, compared to 11% last quarter. Service revenues accounted for 45% of the total revenues, reflecting the company increasing reliance on this side of the business as competition eats into its software products business. Netscape chief executive Jim Barksdale said yesterday that a year ago a quarter of Netscape’s revenues came from its browsers, which obviously bring in nothing now and are treated as a loss leader. Cash as of October 31 stood at $85.9m, which will soon be subsumed into the AOL coffers. The results were announced with the AOL deal before the markets opened yesterday and Netscape canceled its conference call with analysts later on. The shares closed down $2.0625, or 34.9% at $39.875.

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