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. "

Comments

Something is very wrong here

[Animats]

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.)