August 23, 1999 1:41 PM EDT
13:00 ET ******
Red Hat Inc. (RHAT) 65 1/4 -2 7/8: Shares of Linux provider, the free Unix based operating system, continue to back-peddle as the hot money goes away. While for investors that were able to climb aboard early in the process, it has been a profitable purchase, as each days goes by the profits shrink. This much hyped IPO got off to fast start, closing at $54 1/2 after the first day of trading. But the stock peaked only two days later, as the valuation of the stock surpassed the $5.7 billion mark. With the valuation now under $4.4 billion, we can still say that the stock is overvalued and far removed from a more realistic market capitalization. After all, the company only had revenues of $10.8 million last year and will be hard pressed to reach the $20 million mark this year, especially as more users discover that they can download the operating system for free. And should interest rates continue to climb this fall, Red Hat's valuation will be further questioned. While Linux will command a certain loyalty and following from Microsoft foes, Linux will not have an easy time entering the consumer and corporate markets (where the big money resides), and the operating system currently lacks the applications that would make it user-friendly with small businesses. Hence, at best, Linux will be a very nice niche player, which can also apply to the success that Red Hat can expect to enjoy. Trying to sell something that can be obtained for free is a hard proposition and one that we questioned from the beginning. But this did not stop the stock from getting off to a fast start earlier this month. If the surge in Red Hat stock tells us anything is that investors prefer to ignore the facts for the sake of making a quick buck. While such a strategy will work from time to time, more often you could find yourself standing on top of a house of cards. In such circumstances, the fall can be very swift and painful. - RN
11:27 ET ******
Stamps.com (STMP) 35 11/16 +5 1/16: Shares of Internet-based postal service delivery system are getting a nice boost this morning after the company signs an agreement with Microsoft Corp. (MSFT 85 7/16 +2 1/16) to offer stamps via Microsoft's Office Update site. As software suppliers like Microsoft try to become the one-stop shopping locale for office functions and supplies, this deal makes sense for both parties as, right off the bat, it provides STMP with a access for an easy way of marketing stamps online. For MSFT, this deal allows its Office software for small office and home office customers to have quick and convenient access to the Internet Postage service, allowing customers to print postage directly from desktops. Just last month, STMP inked a deal with Office Depot (ODP 15 5/16 +3/16) to become its preferred provider of postage over the Internet, a key step in winning customer acceptance of its software. While none of these deals are exclusive arrangement, these business deals provide Stamps.com with broad distribution channels that can enable the company to reach potential customers, especially small business professionals nationwide. It also keeps Stamps.com ahead of E-Stamps Corp. which has filed for an initial public offering, but has yet to make its debut, as well as Neopost Inc. and Pitney Bowes (PBI 58 1/2 +1/2) which are not expected to introduce their online services offerings until later in the year. Hence, the latest Microsoft association has given STMP shares more visibility this morning, providing the company's software model with a leg up on rival models that are hardware-based and require customers to purchase equipment in order to print stamps. - RN
Copyright ¸ 1999 Charter Media, Inc.
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