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Red Hat Software Businesses

Red Hat Files For Followup Stock Offering 119

Posted by CmdrTaco from the mo-money-mo-money-mo-money dept.
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. "
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Red Hat Files For Followup Stock Offering More

Red Hat Files For Followup Stock Offering

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  • Here's how it works (Score:1)

    by Anonymous Coward
    In the Initial Public Offering (IPO), the owners of Red Hat, Inc. sold 10% of the company in exchange for about $78 million in cash (6 million shares * $14 per share - 7% underwriting commission).

    So the people who bought those shares are entitled to 10% of Red Hat's assets and earnings.

    Now the owners of the company want to sell another 3% of the company. They are coming back to people who want to invest money and saying "do you want to buy some RHAT? Fine, we will sell another 3% of the company to you for cash."

    Companies do this for the cash (obviously), and also because some of the current owners want to get cash for their shares. The company will probably use the money to: acquire other companies; hire more people; run some advertising campaigns; fund more engineering work.

    The price this time will not be $14 per share ($7 adjusted for that 2-1 split), but more like $130 per share. That's why companies raise money one round at a time rather than selling the whole company at the IPO for $7 per share!

  • O'Reilly makes a ton of sense (Score:1)

    by Anonymous Coward
    It's not about the books per se; it's about the mindshare. O'Reilly owns the market for Unix technical books. If any one Unix vendor (such as Red Hat) owned them, the other Unixes would not be documented as well or as thoroughly as O'Reilly's owner's brand of Unix.

  • Re:Good for RedHat (Score:1)

    by Anonymous Coward
    Don't bet on RedHat taking over O'Reilly, as the latter is not publicly held.

  • Re:Okay, so how does this work? (Score:1)

    by Anonymous Coward
    I'm not a businessman nor a lawyer but what a secondary offering essentially is a further request for more money in trade for stock. In the IPO, Red Hat sold out only about 10% of the company stock. Now they want to sell a bit more for additional money. They might be doing this now instead of all during the IPO because the stock is worth 30x what it was during the IPO. Naturally you can expect the stock value to drop a bit when more shares come to the market. I'm kind of surprized the stock value hasn't dropped already since the anouncements. It might be that so many people have had their investments appreciate already that they are willing to tolerate a drop.

  • Bad For Current Shareholders (Score:1)

    by Anonymous Coward
    Although, there are nearly 140 Million shares of RHAT, only 12 Million of them are currently traded over the stock market. The rest are owned by employees and pre-IPO investors. RedHat is now adding an additional 4 Million shares to the 12 Million. If you are a shareholder, this should be scary for you.
    It is easy to argue that RedHat's valuation (the reason its stock price is so high) is a question of supply and demand. Since there are only a few Linux shares out there, investors who want to own Linux have to outbid other investors for the small number of shares. In essence, Red Hat's stock price is so high, becuase shares of Linux companies are rare. What this secondary offering is doing is decreasing the rarity of the shares - by at least 33%. This means that since the supply of shares is going up, the price will most likely go down (barring any other occurences). If this is still difficult to understand, you can equate it to why gas prices are going up now. They are going up since OPEC has decided to make less gas. When more gas is made (like last year), the price goes down substantially. Here, RHAT = gas.

  • Re:O'Reilly makes a ton of sense (Score:1)

    by Anonymous Coward
    And if that happened O'Reilly would cease to have the mindshare that it does. The reason O'Reilly publishes "the" technical books for any good Un*x geek is because they can be counted on to have researched the subject matter very well and provide a clear, correct and impartial view of whatever the particular book is about. I love O'Reilly and I'd hate to see Red Hat (or any Un*x vendor) buy them out. I'm not too worried though since that really seems highly unlikely.
  • Til Further Notice?
    Ta For Now?
    The Financial News?

    this sig file intentionally left blank

  • To all the people who propose that Red Hat acquires all those great companies -- let me remind you that the shareholders of the latter don't necessarily view Red Hat's stock as a currency as good as as cash, because it's so obviously inflated. Quite simply, they might not be willing to sell for Red Hat's stock because it may tomorrow be worth a tenth of today's value.
  • Let's see how long it takes for (void)LinuxOne
    to copy this one.

  • Wrong.

    There are 12M shares circulating (was 6M but they split 2:1). The company is selling more stock, but the real story is the founders are starting to sell out.

    You don't sell stock unless you think the price will stop going up.

  • Can some businessperson of the /. community (hey, we've got Lawyers, why not?) explain to us what a secondary offering is, what kinds of things secondary offerings do, etc.?
  • No one has really explained why a company such as dell, gateway, or ibm would not want to just roll their own distro? After finally getting an opportunity to get out from under microsofts thumb, why would they rush to get under Redhats? They have developers on staff. They have huge amounts of tech support on staff who would need little retraining ("from now on, use this database if it's a Linux question")...

    I think that that's the next wave. Vendors may even say that their distro is based on RHATsfor a while to get the public used to the idea of them being equals, but in the end there'll probably be Dell Linux and IBM Linux etc... some vendors will maintiain the status quo... others will try to differentiate their products with proprietary enhancements and end up incompatible with the rest of the crowd...

    That's what i see at least...
  • Why won't developers standardize behind one of the already existing GUI's for Linux? We already have Gnome, KDE, etc... What good does bringing Be's interface to the table to? It would seem to just fragment efforts even further, if you ask me.
  • IBM's been bullied by Microsoft for so long, I'm sure they'ed much rather support their own OS rather than deal with another potentially obnoxious vendor.

    And the only business they're trying to get out of is the retail PC business... They make a killing with DB/2, support, Lotus Notes, etc... And supporting Linux would play right into their business plan. Rolling their own distro wouldn't be much of an issue:
    Grab a copy of Debian
    Update the kernel
    Update Apache
    Include a free 5 or 10 user version of DB/2, and all of a sudden they've got one of the most compelling web platforms in the world....

    Mark my words, if anyone does it, it will be IBM that builds their own distribution to bundle with their systems. Redhat has a name amongst the geeks and to an extent wall street (who just stand there wondering how it could be worth that much, but might as well buy some because it'll probably go up some more), but for the layman (whom i judge as my parents), they don't know redhat from slackware from debian from caldera. All they know is that Linux exists and it's an alternative.

    For those people, IBM Linux would be much more trust worthy than Redhat Linux.
  • Someone's getting confused here. It's not a secondary initial public offering. It's just a secondary offering. They've already gone public. They made $14/share, when they did that. They've since split, so those share were effectively sold for $7. Now they're going to sell some more shares at $150 or whatever the market will take. That's all. It's a secondary offering.
  • Only in the Software Industry/.com World are companies valued at what their potential could possibly be. Most of the time, as companies announce earnings and growth, analysts up their expectations and set new price targets, etc... Everythings been turned upside down recently (the past few years) as people scurry around looking for the next Yahoo's and Amazons, etc...

    As for your comment about Engineers being more important than sales... Engineers just make a product. Sales and marketing actually earn the money for the company. How many companies have gone under while having an awesome product but aweful sales. And how about everyone's least favorite company around here, which has an inferior product, yet killer marketing and therefore they're the most valuable company in the world...?

    And as for their profitablility... if they stop their attempts at growing, their value will drop like a rock. There's not much profit you can have with $12 million in sales that makes a $20 billion dollar market cap look worth while.
  • here this is not really a priority

    what percentage of people here care about this or

    is relevent to them directly ?

    less then .0000001 %

    so shut up and stop talking about it :)
  • You're missing a very important point: IBM wants out of the software business. Completely. They want absolutely nothing to do with the OS business (remember their last escapade?). They're porting Linux to every machine that they make in a bold attempt to remove themselves from this market. By 2010 IBM wants to be 80% services, and 20% hardware. If Linux allows them to do this cheaply, while retaining complete control over the hardware, then they would be fools to not. Right now you can't swing a dead cat without hitting an MCSE, but the Linux equivelant is still elusive. They can position themselves to be the experts, which furthers both their "services" and "hardware" plans.
  • more take overs, eh?
    The first thing i thought when i heard this was that redhat had over extended themselves from just this sort of activity and needed the extra money just to keep going at their current pace. I'd be pretty surprised if Redhat could take over O'Reilly, Netscape(owned by people with $$), SGI, or Inprise--despite the current linux IPO buzz these companies have much more market proven businesses and would demand HUGE prices. Take away the stock market madness and its still pretty hard to turn a profit off of giving code away, i know i'm not very damn rich, but if Redhat could take over some business(es) that turned a profit off of more things than tech support it would put them in a much more stable position for the future--like next year when the suits stop giving a shit about linux IPOs and the next cash cow darling comes along.
  • That was my point, kind of...
  • That's all fine and dandy. What about SGI's market cap? I'm (almost) willing to bet RHAT could buy SGI now...

  • Try that version:

    This is a bit of an understatment, but there is no way AOL can possibly even touch Time Warner. They may be able to snatch up divisions that spin off of Time Warner, but there is absolutely no way for AOL to takeover Time Warner.
    Time Warner is just too big. AOL, even with all of it's big name corporate ties, is still a relatively small entity.

    Yeah, I know AOL Time Warner is supposed to be a merger... Is it really?
  • I don't think it would make sense for RedHat to *switch* to Be, but the holy grail for Linux right now is the user interface, and that's something that Be has taken care of quite well.

    -----------

    "You can't shake the Devil's hand and say you're only kidding."

  • Except for Be (and maybe Inprise), none of those made any sense.

    SGI is a hardware company - RedHat is clearly not.

    Troll Tech is Qt, and RedHat seems much more focused on GTK.

    You want them to buy Netscape (from AOL) just to GPL it? Why would they do that? That's worthless, especially since it's already Open Source.

    BRU and Arkadia also don't make much sense. RedHat used to package BRU with their distro and it didn't do them much good.

    O'Reilly might make sense, except that it would be a waste of money to buy an entire publishing company for the sole purpose of developing documentation. Better to hire good writers.

    As for ApplixWare... well, they're really not that great.

    -----------

    "You can't shake the Devil's hand and say you're only kidding."

  • Methinks it'll be time soon for a mutual fund that invests exclusively in Linux companies and does so across the board.

    While it's easy to agree with this statement given short-range hindsight to recent events, I'd think some of you would be old enough -- like me -- to recall wizened old stockbrokers telling you to "look for a low P/E ratio & good, sound earnings fundamentals." That sounds anachronistic in this day of e-anything-&-everything-must-be-great, but that's due to emotion and not bottom-line logic, IMO. Remember, we cannot be certain when or if we will achieve sustained profitability is what they said [emphasis mine, naturally].

    When companies that have never seen anything but a sea of red ink (I'm thinking Amazon now, not Red Hat, but this applies to both and many others) get overhyped, little-guy investors will get nailed in the end, IMO. In the meantime, I've seen a number of fundamentally sound ideas go begging for VC money (in part this is my failing, I wish I were better at hype than I am) with scant/no media attention and hence no investor attention, despite being in the black & having a good, specific business plan and fun, unique products.

    Oh well. I predict a lot of "evolution" in the market this year, with possibly even a few extinctions (not thinking about Amazon OR Red Hat now, and I won't say who I AM thinking of). Disclaimer: I am not licensed to give investment advice (and not only that, many people think I'm an idiot). :)
    JMR

  • Comment removed based on user account deletion
  • Enoch Root is a good writer, but for all that he posts he really has never enlightened me, or gave me insight into anything.

    I must say enlightenment is hard to come by, and I never truly attempted to illuminate the masses with my posts. I've never taken my own words to be worth anything more than anybody else's, and I find little gratification in seeing one of my posts moderated up.

    I just post on Slashdot to share my opinion; writing decently is just professional habit. You're right in pointing out that a well-written retort doesn't necessarily carry insightful content; it's a sad fact that the container often takes precedence over the content.

    You know, you're right in not taking karma as marker of the absolute value of a post. We're still feeling the after-effects of the 'visible karma' age, when people started obsessing about karma like crazy. (*mumble* *mumble* ... penis size envy transfer ... *mumble*) In six months, no one will care about Signal 11 or me, as we'll just be Slashdot posters, and not some sort of incidental (in my case, at any rate) leaders in a pointless rat race.

    Now karma is just an integer in a database, and that's what it should have been in the first place. Moderation of posts is more or less the consensus of the general readership of Slashdot, and obviously, we're all welcome to disagree with concensus.

  • I'm confused. TFN = The Fucking Navy? Why would the navy do anything about slashdot?
  • It's also the name of an obscure poetry journal Tooth Fairy News. No kidding.
  • SGI - cool hardware
    This is a bit of an understatment, but there is no way RedHat can possibly even touch SGI. They may be able to snatch up divisions that spin off of SGI, but there is absolutely no way for RedHat to takeover SGI.
    SGI is just too big. Redhat, even with all of it's big name corporate ties, is still a relatively small entity.
  • Existing shares will not necessarily fall..... the issue of new shares can show that the company has confidence in it's future and is growing fast (and therefore needs the cash).

    If the Market believes that Red Hat will use the cash wisely (good acquisitions, investment, recruitment etc.) then the presence of this war-chest will increase the percieved value of the entire company, and the shares of existing shareholders will rise.

    Shares don't conform very well to standard analysis of supply and demand.... you're right that there is a known total supply but demand curves fluctuate a lot based on changing expectations and market conditions. Hence financial economists tend to worry more about estimating future cash flows than trying to fit a dodgy model of supply and demand.
  • TFN also stands for the Transnational Financial Network, which is part of American Express, but somehow, that's probably not the right TFN, either.
  • AOL Market Cap: 141 B RHAT Market Cap 18 B
  • Red Hat Australia recently posted to the SAGE-AU-JOB S mailing list [sage-au.org.au] advertising a number of positions in Brisbane, Australia. The original message included:
    Following Red Hat's 1999 international expansions into Europe & Japan, we are now establishing an Asia-Pacific regional headquarters, which will be located in Brisbane, Australia. This center will provide telephone and contract support services for Red Hat users in Australia, New Zealand, South Asia, India, Korea and Greater China.
    Now while we can joke that RH is burning through the money and this is JustAnotherIPO[tm], it appears they are actually moving into new market places (geographically).

    Several days after the positions vacant e-mail a request was sent to post a mail advertising a $AU3,500 5 day Red Hat training course. From my understanding this is the first time it's been offered in Australia.

    Red Hat are setting up office in Brisbane in the state of Queensland. It's a pacfic rim city, closer to Asia than Sydney, and a number of large IT firms are setting up offices there to manage the Asia-Pacific market. I guess big American companies still prefer to setup shop in english speaking countries? Or maybe than just fell for the shrimp on the barbie line?

    Psike.

  • Meta note: somewhere between Preview (which was really slow today) and Submit, all the HTML in my previous posting was deleted.
  • So, they think they've done the best they can with capital raised in their initial stock offering to create a profitable, money making operation. Yet, they still see additional un-realized opportunities to do more great things in the same vein they'be been doing, if only they had the capital. So it's time to offer additional stock.

    It's great for them if they can get the money, but I think they're blowing it ...
  • Red Hat is burning through money faster than it thought it would

  • While the free (in terms of $) nature of Linux is often used as an argument for purchase it is not the only or even primary benifit of Linux. First off Linux and BSD are in many ways very similar to UNIX, while be able to run on hardware that costs substantially less. Sun (which use Solaris) and SGI (which use IRIX the SGI variant of UNIX) workstations cost a whole lot more, and are harder to get then an x86 machine. Secondly, looking at you other example, NT. Linux is cleaner and more stable then NT by a long shot. How many companies reboot their NT servers on a weekly basis as a part of preventative maintenace, more then you would expect. On the other hand there are Linux machines that have been up for years without a reboot. Thats what happens when you have a community that is truly interested in making a better product, rather then milking their customers for every dime they can. Above all this is the real reason to chose Linux, the freedom it gives you. Don't like the way something works in Linux, or find something broken in Linux, you can fix it yourself, given sufficent knowledge. Lets see you do the same with NT or even most of the UNIX variants out there. You'll end up waiting weeks or months for the provider to provide you with a patch or hotfix. Linux in and of itself may turn out to be hype in the end, but the open software revolution it has started marks a substantial shift in the way software companies will do business for all time.

  • No one has really explained why a company such as dell, gateway, or ibm would not want to just roll their own distro? After finally getting an opportunity to get out from under microsofts thumb, why would they rush to get under Redhats? They have developers on staff. They have huge amounts of tech support on staff who would need little retraining ("from now on, use this database if it's a Linux question")

    You may be underestimating the importance of the support angle. Re-training a whole segment of your staff from being Windows support people to being Linux support people is not going to be as trivial as you suggest. It's probably going to be more cost effective for a big firm like IBM to outsource the development and support for Linux to Red Hat, SuSe, et. al. than to build their own custom distribution and support staff.

    There's also a public perception angle. On the one hand, a big company like IBM still isn't as well recognized in the Linux field as any of the existing distributions, so they can get some extra customer confidence by going with a well known and respected distribution. On the other hand, IBM at the very least doesn't have a completely spotless reputation in the computer community. If they create their own distribution, there are a lot of people who are going to get very suspicious of their motives, particularly whether they want to fork the code and tie people in to their slightly incompatible version. They can avoid that suspicion by using an existing commercial distribution.

  • It's probably going to be more cost effective for a big firm like IBM to outsource the development and support for Linux to Red Hat, SuSe, et. al. than to build their own custom distribution and support staff
    Why? IBM already supports more OSs than I want to even think about, including Unix variants. On the one hand, a big company like IBM still isn't as well recognized in the Linux field ..
    But outside the Linux field, in the big bad world of pointy haired bosses, IBM has more recognition than any computer firm except MS, remember, Red Hat are only worth the money if you think Linux is going to be huge.
  • Isn't "secondary initial public offering" (or ... "secondary IPO") an oxymoron? Just thought it sounds a bit odd to be using the term IPO with what RedHat is doing. Granted, it is an "offering", but it's hardly their initial offering.
  • The amount of stock and money allowed to be raised/sold is determined by the SEC. Not the company petitioning for the sale of stock or options. Due to the speculative nature of stocks the SEC is required to watch over stock offerings. In other words when we say a company is worth x dollars we have no real idea. When companies got broken down and sold rarely is the published company values we read accurate. The entire point of a market economy is the fact that the nature of assets is flexible.
  • Actually, RHAT could probably take over SGI if it really wanted to. As of Friday, RHAT was worth $18.2 Billion on paper and insiders (aka executives, founders, VCs) still own 91% of the company. That means they have at least 16 billion to play with.

    SGI, on paper is worth $1.6 billion. And 70% of that is "in play" (the insiders have 30%). So if RHAT really wanted to buy SGI, I bet SGI would listen.
  • ..., saboteur Belluzzo, clueless directors/managers and suicidal pricing policy did to SGI.
  • Red Hat has one advantage in going after contracts with big computer companies: They have one of the largest collections of Linux talent in the world on staff or on retainer. If you are IBM and you wish to support Linux with your new RAID card, will you deal with LinuxOne, which has no actual Linux kernel hackers on staff, or will you deal with Red Hat, where you have Linus's #2 man Alan Cox on staff? I know which company *I* would be dealing with!

    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

  • What makes Australia so attractive is that nobody hates Australia. That's a unique situation in the Asia-Pacific area, where almost everybody hates everybody else. Everybody hates the Japanese because of what they did during WW2, the Japanese despise the Filipinos and Koreans, the Vietnamese hate the Chinese, etc. etc. etc... if you set your regional HQ in Taiwan, you peeve the mainland Chinese, if you put it in Japan, you peeve everybody, if you put it in mainland China, you peeve the Vietnamese and Taiwanese and maybe even the South Koreans (at least their government, which still has a grudge about being overrun by Chinese "volunteers" back during the Korean "conflict"), ...

    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

  • One of the exhibits mentions that RedHat is buying OpenSource.com.
  • They probably can't afford Intuit, even with their grossly overinflated stock. Intuit is a multibillion dollar company, I believe.

    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. [gnucash.org]

  • They probably can't afford Intuit, even with their grossly overinflated stock. Intuit is a multibillion dollar company, I believe.

    #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 [gnucash.org].
    #endif

  • Um... sorry to burst your bubble, but Australia has a long-running fight with Indonesia, for a variety of reasons (including the whole Irian Jaya (sp?) mess).

    What really interests me is that they have left out a really BIG chunk of the Asian market - of course Indonesia (5th or 6th largest country in the world by population), Malaysia, Singapore, Hong Kong, Taiwan, etc. (Of course, I'm presuming that RH's "South Asia" comment doesn't include South-East Asia).
  • 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.
  • I've been through two companies that assumed they would do well by setting up HQ's in Australia. Australia to a large extent mirrors the US and has a large comfort zone. However, Australians still tend to be significantly clueless when it comes to doing business in Asia.

    Any company that is serious about doing business in Asia opens their HQ in Singapore or Hong Kong and possibly rep offices in Japan, Korea and India. Singapore and HK offer a good legal system, geographical proximity (try getting a Malaysian company to agree to arbitration in Australia or visa versa, the travel costs alone would kill you) and multi-lingual local talent that can speak Cantonese, Mandarin and English.

    Support from Australia is VERY expensive as it involves hiring multi-lingual people, expensive toll free lines from the various countries and removes the flexibility to negotiate local contracts in local currencies. If you have to pay your employees in Aussie $$'s then you want you customers to pay in Aussie $$'s which is not a good model for a lot of the poorer countries.

  • 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.

  • 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.
  • 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.

    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 :-) who populate slashdot, then an equally powerful barrier becomes important: mindshare.

    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!
  • 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.
  • A correction to my message starting this thread - actually, Red Hat got a lot less than $500 million from the IPO. They list their actual assets as around $100 million. So I can see them going for a second-round IPO. They're in an awful position, having to satisfy $30 billion worth of investors but having only $100 million in assets to do it with.

    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.

  • Secondary IPO info (Score:3)

    by rawrats ( 16165 ) on Saturday January 15, 2000 @07:39AM (#1368907) Homepage
    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.

  • Here's why they want a second offering (Score:3)

    by JohnZed ( 20191 ) on Saturday January 15, 2000 @08:19AM (#1368908)
    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

  • Re:Good for RedHat (Score:3)

    by ajs ( 35943 ) <ajs.ajs@com> on Saturday January 15, 2000 @11:38AM (#1368909) Homepage Journal
    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.

  • Re:Good for RedHat (Score:3)

    by hedgehog_uk ( 66749 ) on Saturday January 15, 2000 @08:07AM (#1368910) Homepage
    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

  • Hmmm... (Score:3)

    by spaceorb ( 125782 ) on Saturday January 15, 2000 @07:34AM (#1368911)
    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.

  • Good for RedHat (Score:4)

    by Bill Henning ( 504 ) on Saturday January 15, 2000 @07:34AM (#1368912) Homepage

    Some possible interesting takeover targets for RedHat (some already mentioned here, some not):


    • O'Reilly - would write great documentation
    • Netscape - fully GPL the browser
    • Troll Tech - fully GPL QT
    • The Bru or Arkadia folks - backup software
    • Be Inc. - some good Multi-Media code
    • SGI - cool hardware
    • Precision Insight - X servers
    • ApplixWare - the office suite
    • Inprise - development tools
    • and the list goes on...

    There would be a lot of good possible takeover targets! This will be interesting to watch.

  • Page 9 (Score:4)

    by / ( 33804 ) on Saturday January 15, 2000 @07:37AM (#1368913)
    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.

  • Something is very wrong here (Score:5)

    by Animats ( 122034 ) on Saturday January 15, 2000 @09:17AM (#1368914) Homepage
    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.)

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