By shifting its financial year end when it was already two months into the new one, Netscape Communications Corp has managed to sideline what turned out to be a disastrous January and concentrate on the following three months, which now constitute its second quarter and in which it managed to exceed analysts’ expectations by a reasonable margin. In the three months ending April 30 Netscape managed to record net income of just eight dollars, or nil per share, on revenues of $127.2m. That also includes an ‘other income’ line unusually high at $8.3m; $1.8m of it from interest and the rest from gains on sales of certain securities. In comparison, in the first three months of last year (January-March) Netscape recorded net income of $7.3m, or $0.08 per share on revenues of $125.3m. Wall Street was looking for net losses of 10 cents per share this time, according to First Call. However, in January, Netscape recorded net losses of $54.2m, or 58 cents per share including $12.0m in restructuring charges, on revenues of just $8.3m. So by sidestepping January as if it never happened, the company managed to turn a 58 cent loss per share including charges for the first four months of this calendar year into break-even for February through April and a 58 cent per share loss concentrated in one bad month. Not the kind of accounting practices to win friends on The Street. Netscape said in February that it changed its fiscal year to better reflect the seasonal buying patterns of enterprise customers into and put it into line with the major hardware and software vendors that target large customers, which is a moot point at best. Prolonged end of year celebrations or something less jovial were probably to blame because the company’s mind was clearly elsewhere in January. It was in that month that it announced its intention to give away Communicator/Navigator for free and open up the source code of the next version of Communicator to the internet development community for fine-tuning. It also announced job cuts – 20%, or 400 people is the consensus – though the company has never confirmed this, hence the $12.0m charge. But the company also took a $23.0m restructuring charge in the December quarter of the last fiscal year. What makes this all seem like pouring a bad few weeks into a black hole is that though the revenues in January were puny at $8.3m, all the other figures, such as cost of revenues (admittedly the people hadn’t been fired yet), R&D, sales and marketing and general and administrative expenses looked normal for one third of a quarter. Peter Currie conceded that in that month there wasn’t much business that got done. Anyway, breaking down the revenues for what is really now two companies in one, the enterprise software revenues were $96.2m, compared to $91.4m the previous year, and the revenues from the Netcenter website were $31.1m, compared to $21.3m in the three months ending December 31. Chief executive Jim Barksdale said he envisaged Netcenter bringing about a quarter of the revenues for the foreseeable future. However, once again, Netscape is being somewhat disingenuous, using the new fiscal year to compare the software revenues, and a mixture of the new and old for Netcenter; and both times bypassing January as if it wasn’t there. That kind of manipulation does not go down well with Wall Street. Also, Netscape appears to be getting amnesia about the timing of two of its recent deals – the ones with Excite and Citibank, which it says was its largest ever software deal. Chief executive Jim Barksdale claimed the Excite deal – from which Netscape is die to get $70m up front before June 30 – was announced in April when it was actually announced May 4. Incidentally, chief administrative officer Peter Currie said this quarter (the one to April 30) did not include any of those revenues. The deal with Citibank was only announced last week, but that counts as this quarter, at least according to Barksdale. All in all, it was a shoddy performance from a reporting standpoint. And even if Netscape did beat estimates in a three month period, it was one in which only two analysts contacted by First Call felt confident enough to provide an estimate, against 13 in the second quarter the previous year. No doubt more than two will be listening on June 4 when Netscape puts its case to the analyst community. á
