[ The opinions expressed by authors on Linux Today are their
own. They speak only for themselves and not for Linux Today.
]
It was inevitable: Wall Street insiders are fighting back
against the high valuation put on Linux stocks, using sneering
phrases like “companies that have never made money” and “a tiny
company with dim prospects goes public with a bang”. They sneer
that Linux stocks are being driven up by ignorant day traders who
are ignoring the fundamentals. Yet — what are the
fundamentals?
It appears that these Wall Street insiders (who quote each other
in their sneering remarks) are guilty of three sins: avarice,
hubris, and willful ignorance.
Avarice
These Wall Street insiders did not get in on these IPO’s because
they were not aware of Linux prior to the last couple of months,
and thus they’re not getting the chance to make money off of them.
But if the stock price was lower, maybe they could make money by
buying them. Getting the picture?
Hubris
All these “ignorant” people (read: Linux enthusiasts, computer
geeks, etc.) are making money. Why, these “ignorant” people don’t
have MBA’s from Harvard like these Wall Street insiders, how DARE
they think they know what they’re doing? Why, everybody knows that
if you don’t have an Ivy League MBA, you’re pond scum. At least, if
the “everybody” you’re talking to is a Wall Street insider.
Willful Ignorance
I will be charitable here. Rather than accuse people of
deliberately lying, I will state that they are guilty of willful
ignorance.
Red Hat Software and VA Linux Systems are companies that have a
lengthy track record that is public knowledge. Each of these
companies is at least five years old, and each was profitable until
they decided to go the venture capital/IPO route. Each is a leader
in their particular market space. We are not talking about new
companies that aren’t even delivering a product. We’re talking
about known, proven commodities, companies with a track record.
Fundamentals are far more than just this year’s profit/loss
statement. Red Hat Software and VA Linux Systems together have the
largest collection of Linux authors and Linux talent on the planet,
more than all other vendors combined. That Linux talent has a value
— a value that the Wall Street insiders are overlooking. If Linux
is going to overtake Windows NT as the workgroup server of choice,
which is indeed possible (Linux already has overtaken Windows NT in
the web server market), these two companies have an excellent
chance of being able to capitalize that talent. They also have good
name recognition, and in VA’s case, a marketable domain name
(linux.com) that can be used to provide additional value to their
brand. These are assets that no other company can currently bring
to bear in the Linux market.
So yes, it’s a gamble. And yes, the stock is probably overvalued
— at the moment. On the other hand, even at today’s overinflated
value you’re still likely to break even if you hold it for at least
five years. These companies have been in business for five years or
more, and it is likely that they will remain in business for
another five years. During that period of time, their stocks are
likely to split several times. Thus even if you buy Red Hat for
$250 today and it’s selling for only $60 five years from now, all
that has to happen is for it to split five times and you’ve at
least broken even (accounting for inflation, of course).
In the meantime: I wouldn’t buy Red Hat or VA Linux stock today.
Breaking even in five years isn’t my idea of a good way to invest.
But the statements being made by Wall Street insiders — accusing
people of ignorantly buying “hype”, and bad-mouthing companies
using statements that are factually incorrect — are slanders that
reek, and which need to be strongly corrected (in a polite manner,
of course).
Footnote: It is amazing, but true, that writers for e-zines
appear to be running for cover whenever they mention the word
“Linux” in one of their articles. EMAIL addresses are disappearing
all over the world in order to hide from Linux flamers (otherwise
known as “that Slashdot crowd” by journalists). The problem is that
this also hides them from people who would correct their
misconceptions with factual statements, thus leaving them to be
publically embarrassed in articles such as this one. In the past
I’ve privately contacted journalists with corrections and they
haven’t made those same mistakes again. Alas, it appears that the
days of journalists willing to be educated by Linux insiders are
over.
—Eric Lee
Green