STOCKREPORTS

NETCOM On-Line Communication Services, Inc.

Nasdaq Symbol NETC

Recent Price 16.38 52 Wk Range 27.00 - 8.63

Yield Nil 12-Mo. P/E NM

Quantitative Evaluation: Outlook (1 Lowest - 5 Highest) NA Fair Value NA Risk HIGH Earn/Div Rank NR
Technical Evaluation: BEARISH since 06/97 Rel. Strength Rank (1 Lowest - 99 Highest) 95 Insider Activity Neutral

Overview 08-MAY-97

Revenues in 1997 are expected to rise strongly, reflecting continued growth in demand for Internet access services. Meanwhile, the company is changing its business strategy. NETCOM is phasing out its flat rate pricing plan for consumer access services, and will instead focus on small and medium size businesses and on premium services for individuals. Average revenue per subscriber in the first quarter of 1997 rose 7% from the fourth quarter of 1996, to $22.46, as the company focused on providing more value added services to customers. Gross margins may narrow, reflecting costs associated with international expansion, the growing subscriber base and network improvements. Operating expenses should decline as a percentage of revenues as the company lowers its spending to acquire customers. As a result of the competitive pricing environment and higher spending required for international expansion, we do not foresee profitability until late 1998.

Valuation 08-MAY-97

The shares have fallen sharply since December 1996 on concerns regarding increasing competition. The company's subscriber growth is slowing somewhat as it transitions from its flat rate pricing model to providing more services targeted at business users. Strong competition from the consumer on-line service providers, the local and long-distance telephone companies, and other Internet service providers will most likely lead to continued price competition and increased sales and marketing expenses. The shares are near their all-time low, and we believe at these levels the company could be an attractive acquisition candidate for a larger player seeking to expand its Internet business. However, due to continued strong competition, we expect the shares will be market performers near term.

Key Stock Statistics

Fiscal Year Ending Dec. 31

Dividend Data: No cash dividends have been paid on the publicly held shares.

Business Summary 08-MAY-97

NETCOM On-Line Communication Services is a leading provider of Internet services to individuals and businesses. NETC offers subscribers an integrated Internet access solution comprised of software, high-quality access service and 24-hour customer support.

NETC's high-speed digital telecommunications network provides subscribers with direct access to the full range of Internet applications and resources, including E-Mail, World Wide Web sites, USENET news groups and database information (including graphics, data and public-domain software). The company's software platform, NetCruiser, features an easy-to-use interface that organizes information found on the World Wide Web. NETC has experienced rapid growth in its subscriber base, reaching 580,000 subscribers as of December 31, 1996, up from 24,800 subscribers on July 1, 1994, when the company introduced its NetCruiser software.

The company's nationwide telecommunications network is comprised of a backbone of leased high-speed dedicated data lines and 331 points of presence (POPs). These POPs allow subscribers to access the Internet through a local telephone call. NETC has engaged in a rapid expansion of its POPs throughout the U.S. The company also has recently expanded to Canada and the United Kingdom, and intends to continue its international expansion.

In 1996, NETCOM developed and strengthened its relationship with leading global technology companies, including Microsoft (Internet Explorer), Netscape (Netscape Navigator), Adobe (Acrobat Reader), Macromedia (Shockwave multimedia software), McAfee Associates (WebScan virus protection) and QUALCOMM (Eudora Email applications), among others.

In January 1997, NETC announced plans to explore various alternative methods for Internet access to improve delivery speeds and convenience for its customers. The company will co-develop a wireless Internet service with RadioMail Corporation, test high speed cable access service with Prime Cable Company, and explore satellite delivery service with Hughes Network Systems. Separately, NETC announced an agreement with AimQuest Corporation to provide customers traveling outside NETCOM's service areas access to the Internet through over 40 other Internet service providers and telephone companies.

Important Developments

Apr. '97 The company launched its NETCOMplete Advantage strategy to provide subscribers with full service and reliable Internet access for $24.95 a month with a $25 set-up fee. Current NETCOM customers who pay $19.95 for basic online service can upgrade for free until July. NETCOMplete Advantage is one of a series of premium offerings aimed at adding extra features and reliability to standard Internet access.

Capitalization

Long Term Debt: $3,075,000 (3/97) of cap. lease obligs.

Curr. Ratio	3.2	8.7	3.3	0.3	NA	NA	NA	NA	NA	NA
% LT Debt of Cap.	Nil	Nil	Nil	2.3	NA	NA	NA	NA	NA	NA
% Net Inc.of Revs.	NM	NM	NM	9.4	NA	NA	NA	NA	NA	NA
% Ret. on Assets	NM	NM	NM	NM	NA	NA	NA	NA	NA	NA
% Ret. on Equity	NM	NM	NM	NM	NA	NA	NA	NA	NA	NA

Data as orig. reptd.; bef. results of disc. opers. and/or spec. items. Per share data adj. for stk. divs. as of ex-div. date. E-Estimated. NA-Not Available. NM-Not Meaningful. NR-Not Ranked.

Office--2 N. Second Street, Plaza A, San Jose, CA 95113. Tel--(408) 881-3233. Website--http://www.netcom.com Chrmn, Pres & CEO--D. W. Garrison. SVP, CFO & Secy--C. T. Weatherford Jr. Investor Contact--Laura Crowley (408-881-3233). Dirs--C. L. Cox, D. W. Garrison, S. J. Getsey, D. Goldaman, L. J. Hindery, Jr., G. P. Madden, D. P. Mixer, C. C. Townsend, III. Transfer Agent & Registrar--Chemical Trust Co. of California, San Francisco. Incorporated--in California in 1992; reincorporated in Delaware in 1994. Empl-- 759. S&P Analyst: Aydin Tuncer

This report is for information purposes and should not be considered a solicitation to buy or sell any security. Neither S&P nor any other party guarantee its accuracy or make warranties regarding results from its usage. Redistribution is prohibited without written permission. Copyright © 1997