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Strategies & Market Trends : LastShadow's Position Trading -- Ignore unavailable to you. Want to Upgrade?

To: ynot who wrote (19460)	8/12/1999 7:04:00 AM
From: tom pope	Read Replies (1) \| Respond to of 43080

RHAT Here is Harmon's take on RHAT. Not quite clear whether he's damning with faint praise or praising with faint damns. e-harmon.com's NetStock! by Steve Harmon ceo of e-harmon.com "for the internet investor" e-harmon.com ___________________________ The Cat In The Hat: How Will Red Hat IPO Be Felt? It's akin to the Mad Hatter. There are hat tricks and hat tips, Red Hat Software's IPO is a mixture of both. It's a company which packages freeware but upsells consulting and technical support around it. Red Hat Software, which just raised its filing range to $12 to $14 from $10 to $12, wants to sell 6 million shares through a syndicate led by Goldman Sachs in an Internet IPO market that has about as much personality as Al Gore in an AOL chat room. Red Hat's claim to fame comes via its putting a face and packaging on the 10-million user strong Linux alternative operating system. You may have seen Linux making headlines of late with its adoption in a small way by the 'everyone but Microsoft' brigade: HP, Oracle, Intel, IBM and a few more acronym soup to nuts players. The important thing I think for investors kicking the tires on Red Hat is this: keep in mind that Red Hat is not the Linux world in a box. Red Hat Linux represented approximately 56% of new license shipments of Linux-based server operating systems in 1998, according to International Data Corporation (IDC). IDC says that 17% of all so-called "server" operating systems (those that run networks inside corporations and the Internet) were Linux based of some flavor. For its fiscal year ending February 28 Red Hat posted $10.79 million revenue and a slight loss, $91,000. Top line was double that of 1998. With a pro forma 66.58 million shares outstanding that imputes an 80x revenue multiple for its latest year's results. However, I project Red Hat could better than double that for fiscal 2000 ending February, implying a 36x forward multiple. Let's back up and consider the strategy here: package freeware, upsell tech support and services, challenge Microsoft NT in the server OS space (as well as Novell) and others. And in it IPO Red Hat asks for a revenue multiple premium vs. off the shelf software makers (which tend to trade in the 3x to 10x revenue multiple range). Pros: The things I like about Red Hat: using the Web's distribution, leveraging off of thousands of Linux developers, providing a turnkey package of a decent alternative OS, beating Novell, Santa Cruz Operation and others to the model. Cons: lots of competition in the free UNIX ware arena, valuation seems frothy vs. other Internet software stocks. Overall: Remember that happened to Netscape when it challenged Microsoft on the desktop? Red Hat's challenge in the server OS space could be as brutal. The $73 million pro forma working capital may not be enough to win that war. That's a rounding error in Microsoft's software marketing budget. On the e-harmon.com IPO rating meter, 10 being a sizzler, REDH rates a 6 1/2 for trying. The score could go higher if it can get larger corporations (many which have taken small equity stakes in the firm pre-IPO) to be aggressive with Red Hat Linux on their own PC boxes for their own networks.