Slashdot Mirror
Red Hat Files For Followup Stock Offering
An anonymous reader writes "Red Hat has filed with the SEC for a followup offering of up to 4 million shares. The goal is 'To provide working capital and for other general corporate purposes including geographic expansion and possible strategic acquisitions or alliances.' The S-1 filing can be found
here. "
..., saboteur Belluzzo, clueless directors/managers and suicidal pricing policy did to SGI.
Contrary to the popular belief, there indeed is no God.
With Linux, it's not the product, it's how much support you can expect for the product, and that's a direct function of how many top Linux people are on staff at the company you're dealing with. To underestimate the value of that talent would be a big mistake -- a mistake that IBM etc. are not likely to make.
-E
Send mail here if you want to reach me.
Australia must seem like a haven of sanity in the midst of all that hatred, and it's no surprise that people build their Asia-Pacific HQ there rather than in some place where they might peeve potential customers.
-E
Send mail here if you want to reach me.
One of the exhibits mentions that RedHat is buying OpenSource.com.
-- Tom Rathborne
I'm part of a team working on a decent, GPL'd, accounting package for Linux. We're not quite Quicken yet, but we're working on it! Check out (with CVS preferably) Gnucash.
Any sufficiently advanced technology is indistinguishable from a rigged demo
--Andy Finkel (J. Klass?)
#ifdef PLUG
I'm part of a team working on a decent, GPL'd, accounting package for Linux. We're not quite Quicken yet, but we're working on it! Check out (with CVS preferably) Gnucash.
#endif
Any sufficiently advanced technology is indistinguishable from a rigged demo
--Andy Finkel (J. Klass?)
PC Manufacturers support the Windows installations they sell, rather than Microsoft. If Redhat wants $25 a machine (1/2 of what MSFT recieves) and IBM believes they can sell 1 million of them, then that's $25 million down the drain. Especially with the bottom of the barrel systems, where that $25 could have turned the profit from a machine from $50 to $75 dollars. That's 50% extra profit, if they decide to bring support in house. They already have the skills and expertise to support the systems, they would just need to retrain a fraction of their employees.
They could be quite clear about their motives: The license permits them to do this, They feel they can provide the same product for a lesser price to their customers, etc. etc. etc. If they DO make changes from the norm with a proprietary angle on their systems, people won't like it and won't buy it. But if all their changes are GPLed, then their systems will simply be the first on the block with feature A.
All the manufacturers were whining in the Microsoft case that they could no longer differntiate themselves from their competition. Rolling their own Linux distribution affords them the opportunity to maintain complete control of the systems they sell.
Considering the amount of shares tied up by insiders adding 4 million shares to the tradeable market will devalue all the shares. Then once the insiders can start selling some of them will, maybe to buy a new car or a new house. The point is that soon there will be a lot of shares for sale, and that will drive the price down.
I like Redhat software, use it regularly. I think they will last as a compnay, but I think their stock will go down as far as it has gone up before they turn a profit. They simply aren't going to make money any time soon, and some investors seeing how high the stock has gone will cash in.
Anyone who cannot cope with mathematics is not fully human.
Mindshare is important, but it's not quite as important for commodities like Linux as it is for other products. When consumers decide they want Linux, they'll quite often be persuaded to buy a competing offering if it's "just like [RedHat] only $20 instead of $50". And because of the GPL, the consumer is pretty much guaranteed that the competing product will actually be equivalent.
Another point: most of the money that comes from selling OSes doesn't come from purchases off the shelf; it comes from OEM bundling with new computers. When Linux truly goes mainstream, there will be an incentive for computer manufacturers to go with RedHat in order to get use of their trademark, but that trademark must be worth a lot if it overrides the cheaper alternative of just bundling a RedHat-clone. Because of that interplay, RedHat will have to keep its prices down, which doesn't bode well for the success of its stock, which is what this thread is all about.
"If one is really a superior person, the fact is likely to leak out without too much assistance" -- John Andrew Holmes
Red Hat has real financial problems. [...] They should have become profitable as soon as they had any reasonable volume. like a hit record. But they're not. This raises real doubts about the business model.
You could not be more wrong without refering to a differnet industry (oh wait, you did).
Red Hat is not a singer belting out a tune. That would become profitable practically instantly becuase the publishing company would already exist. However, if you saw a music publishing company come into existance, you would not expect them to become profitable instantly because they need to build out the infrasturcture to support further records, distributuon, deals, etc.
The same is more true in the software industry. Contrary to popular belief, engineers are cheap. They're expensive compared to many employees, but on the bottom line of a company, they produce more profit than just about anyone. Sales, marketing, PR, HR, facilities, product managers, senior management, accounting/finance and the many other employees are much more expensive in terms of profit produced vs expense (though sales is right up there with engineers in some companies). Then there's the expense of making a name for yourself, maintaining a public comany (not cheap!), growing into foreign markets (way expensive!), acquiring stratigic companies (actually not much more expensive than expanding into foreign markets) and many other operating expenses.
Just as a reality check: let's say Red Hat wanted to build a marketing, distribution and sales enterprise that could rival, say... Microsoft. If that were the case, how much money do you think it would cost to build that infrastructure? Personally, I think they could spend the whole wad they got on the first IPO and still have a long way to go. It'll take years. If they just wanted to be profitable, they could stop spending money on growth at any time. That's not really the point.
Red Hat is planning for the long term, as well they should. They are building a world-class software company, and that will take time and money. If they don't show a profit for another year or so, I'll still be very optimistic about them.
It's easy to confuse oneself with the meaning of "barrier to entry". Technical people such as yourself, who are accustomed to associating that phrase with the name of a certain software giant (hmmm...) often mistakenly believe that the only meaningful type of entry barrier is a financial or legal one. Big Evil Corporation secures exclusive contracts with manufacturers and retailers, and procedes to engineer their products further and further away from compatibility with the products of other products.
:-) who populate slashdot, then an equally powerful barrier becomes important: mindshare.
True, Red Hat cannot hope to produce this sort of barrier. For one, there is the nature of the GPL, for another, the ethics of the community that is fostering their growth from a seedling startup to a major force.
But if Linux ever becomes a product that is sold primarily to the mainstream customer and not to the elites (real or self-deluded
The average consumer is unlikely ever to choose an OS based upon its most technical details. In reality, people who pursue computers to accomplish unrelated work rather than as a hobby get their purchasing information from friends, trade mags, and marketers, not from the spec sheet. They are provably unlikely to purchase an unknown product if a name brand is beside it on the shelves. Look at the respective popularites of K-Mart and The GAP.
The real difficulty a startup Linux company will have in the next decade is not pressing CDs but differentiating itself from the competition. This can only be done by promoting their brand into consumer households. It's a race for mindshare, not technical superiority. And Red Hat has a gigantic head start.
-konstant
Yes! We are all individuals! I'm not!
-konstant
Yes! We are all individuals! I'm not!
Some possible interesting takeover targets for RedHat
Buying Cygnus made sense. Some of the others you've listed also make sense. But the last thing I want to see is for Red Hat to overstretch itself. They aren't showing signs of it yet, and I don't want them to forget what they do and simply start growing through acquisitions.
That said, I could see them acquiring one or more of these. You've cited reasons for each of them, and good ones. We'll have to wait and see what they want to do with the money. I assume they aren't allowed to say much about it until the shares hit the market.
The net will not be what we demand, but what we make it. Build it well.
Something nobody seems to have mentioned - because this is GPLd software, nobody needs to buy multiple copies. One hosting operation with a thousand servers - one shrink-wrapped Red Hat box.
Redhat has 137,590,000 shares circulating. If they sell another 4M shares, that's a pretty small dilution, so we wouldn't expect the stock price to drop that much. At today's price, $132, they raise $528M. At the rate they're burning $$$, they could use a half billion shot in the arm.
A secondary IPO allows the company to offer many of the shares not already on the public market to the public. This means many more shares will be available for trade after the secondary IPO.
In the age of Internet stocks, secondary IPOs have become a way for execs at companies with high-flying stock prices to cash in. While normally executives at publicly-held companies must wait 6 months or so and divulge all scheduled sales of stock, secondary IPOs offer those same executives a chance to cash out on a large percentage of their stock.
-- jar
A typical reason for a secondary offering is that a company has had a great IPO and a great run-up afterwards, but most of that money ended up going to early investors, not the actual corporation. For instance, Red Hat sold something like 7 million shares at $14 each for a total of around $100 million in cash. If they had sold those 7 million shares at today's prices, they would have taken in over $800 million to use for corporate purposes. Actually, though, they plan to sell 2.75 million (plus some more personal shares from top holders) for about another $300 million.
Look at the obscene prices they had to pay for Cygnus and Hell's Kitchen when they paid in stock. If they had been able to pay cash for HKS, they would have gotten it at a fraction of the cost. With this new cash infusion, they'll be able to make deals like that, as well as generally invest (as a minority holder) in the new wave of open source startups.
--JRZ
I doubt that they are going to make many large acquisitions. The money would be better spent, at this point, in improving distribution channels, securing large partnerships with hardware manufacturers, opening foreign offices, building more internationalized distributions (easier with Linux/X/GNOME than with most other OSes) and generally becoming the only distribution that people think of when they think Linux. Buying out one of the other competing Linux vendors might also be the way to go.
I say this from a financial point of view, but of course, I still cheer when I see things like Mandrake and TurboLinux. We need a more competitive market than the computer industry has had. It's starting to shape up to be a lot like the car market, and that would be a (reasonably) good thing.
Red Hat should buy Intuit (or at least become a major shareholder in them). Then we'd get Quicken / Quickbooks for Linux and many people would be able to wave Windows goodbye.
HH
Yellow tigers crouched in jungles in her dark eyes.
She's just dressing, goodbye windows, tired starlings.
Time for a new Slashdot Section: IPO'S.
It seems like every other day some company raised X million capital, or has filed for an IPO. Or maybe just a business or finance section could accomodate this type of news. Just an idea.
Some possible interesting takeover targets for RedHat (some already mentioned here, some not):
There would be a lot of good possible takeover targets! This will be interesting to watch.
--------- Webmaster, http://www.cpureview.com and
We have incurred operating losses in four of our previous five fiscal years, including our most recent fiscal year ended February 28, 1999, as well as in the nine months ended November 30, 1999. We expect to incur significant losses for the foreseeable future[.]
[W]e cannot be certain when or if we will achieve sustained profitability. Failure to become and remain profitable may adversely affect the market price of our common stock and our ability to raise capital and continue operations.
And neither am I certain, from this vantage (albeit from the vantage of someone who missed out on the initial ipo frenzy). I plan to continue to use RedHat's products for the near future, just as I do with many IPOed companies' products which are being sold as a loss-leader, but it'll be some time before I plan to buy any of their stock. I trust that Linux will win out in the long run, but I'm by no means certain that RedHat will be the ultimate victor -- the barrier to entry is just too small. The winner might not even exist on the field at this moment.
Methinks it'll be time soon for a mutual fund that invests exclusively in Linux companies and does so across the board.
"If one is really a superior person, the fact is likely to leak out without too much assistance" -- John Andrew Holmes
Red Hat has real financial problems. Despite that $30 billion market capitalization everybody looks at, they only have about $500 million in assets from their IPO. They're trying to capture some of that market cap for their own use with a secondary IPO, and get another $350 million. But why the big rush? Because the insiders own about half the stock, but can't sell for six months after the IPO. The first restrictions on insider sales run out in February, at which time the founders can cash out, put the carpeting in on the yacht, and retire, if they so choose. Those sales can dwarf the number of shares in the secondary IPO, as the SEC filing points out. This will tend to drive the stock price down. But the real trouble is on the current-accounts side. Red Hat is a company that sells a product that they didn't pay to develop, can manufacture cheaply, sells for a reasonable retail price, and they still lose money. They don't have to pay for huge manufacturing plants, billion dollar wafer fabs, or building retail stores in malls. They should have become profitable as soon as they had any reasonable volume. like a hit record. But they're not. This raises real doubts about the business model. How's it supposed to ever become profitable? If it's not working now, why will it work later? If you don't know who the sucker is in the game, you're the sucker. (Buffet - the investor, not the singer.)