RealTime IT News

A Wake Up Call for Investors

Linux, Linux, Linux...buy, buy, buy. Investors can't get enough shares in the companies selling, servicing and supporting the radical operating system. The numbers speak for themselves:

Red Hat (RHAT) was priced at $14 on August 12. With Tuesday's close at $215 per share, the stock is up 1,435 percent and supports a market capitalization of $14.8 billion. For Red Hat, revenues rose a modest (by Internet standards) 89 percent to $7.2 million for the six months ended 8/31/99. Net loss totaled $5.3 million. VA Linux Systems (LNUX) priced at $30 per share on December 10. Tuesday's close at $180 per share, means a 500 percent lift-off and a market cap of $7.1 billion. Cobalt Networks Inc. (COBT) priced at $22 on November 5. With yesterday's close at $104 per share, the stock is up 373 percent and demands a market cap of $2.8 billion. Andover.net (ANDN) priced on December 10 at $18 per share. Tuesday's close at $38 per share, represents a 111 percent climb and a $303 million market cap.

A concern Reporter@Large has with investors in this space is the wide-spread lack of knowledge and information. That is to say, investors can't give the Peter Lynch "story." (Peter Lynch, the legendary former Fidelity Magellan Fund manager, believes all investors should be able to give at least a two minute run-down before making a buy/sell decision). Well, a good amount of research, a few phone calls and an interview with an Open Source/Linux expert and voila...Reporter@Large has made it possible for investors to tell the story.

Linux is an underlying software code that runs a computer. Often referred to as the "kernel," the operating system tells a computer what to do and how its software should behave. The common usage of Linux is comparable to MacOS, Windows NT, Solaris, or BeOS.

It's important to note that Linux and Open Source, while closely related, are not synonymous. Open Source is a method of software development where the underlying components (source code) is exposed for review, customization, and redistribution. Developers from anywhere in the world continually modify and improve Open Source projects. A traditional company such as Microsoft Corp. (MSFT) has its own team of developers who create its software and privatize the code (Closed Source). Linux is actually just one of many Open Source software "projects." Uniquely though, "it's supported by thousands of volunteer programmers, hundreds of millions of dollars in venture capital, and stratospheric stock valuations" noted Fast Company's John R. Quain.

Like most Internet issues, Linux oriented companies carry lofty valuations despite little or no earnings. But unlike other Internet sectors, the financial/investing risks are greater in a space where the main product (Linux software) is readily free for consumers.

Reporter@Large had the opportunity to speak with Steve Blood, a man at the heart of the Open Source/Linux space. Steve founded CopyLeft.net, an online retailer of Open Source software goods and Linux-related merchandise. Unlike most Internet companies today, CopyLeft.net has turned a considerable profit in only its first ten months, despite donating 25 percent of gross revenue to support Open Source software projects.

Reporter@Large: All this talk about Linux wiping Microsoft away. Investors have the idea tha