Linux as an investment

Linux as an investment

Post by R. Spink » Sun, 31 Dec 1899 09:00:00



I'm thinking that Linuz will be a good financial investment in the long
term. Microsoft has proved very profitable for many, why not Linux? Does
anyone have suggestions as who is likely to be profitable as an
investment in Linux? I've heard Red Hat is public, but I don't know much
more than that. Suggestions?
 
 
 

Linux as an investment

Post by pac4.. » Sun, 31 Dec 1899 09:00:00




Quote:> I'm thinking that Linuz will be a good financial investment in the
long
> term. Microsoft has proved very profitable for many, why not Linux?
Does
> anyone have suggestions as who is likely to be profitable as an
> investment in Linux? I've heard Red Hat is public, but I don't know
much
> more than that. Suggestions?

Las Vegas.  Better odds.

Sent via Deja.com http://www.deja.com/
Before you buy.

 
 
 

Linux as an investment

Post by Mike » Sun, 31 Dec 1899 09:00:00



Quote:> I'm thinking that Linuz will be a good financial investment in the long
> term. Microsoft has proved very profitable for many, why not Linux? Does
> anyone have suggestions as who is likely to be profitable as an
> investment in Linux? I've heard Red Hat is public, but I don't know much
> more than that. Suggestions?

Why not Linux? I dunno.... maybe, profits?

Let's look at four Linux plays:

VA Linux Systems (LNUX): Down from 320, it closed at 38 15/16 today.
EPS: -2.01

Red Hat (RHAT): Down from 151 5/16, it closed at 19 3/8 today. EPS: -0.42

Caldera (CALD): Down from 33, it closed at 6 1/8 today. EPS: -0.79

Corel (CORL): Down from 44 1/2, it closed at 2 15/16 today. EPS: -0.19

There's not much compelling here from an investment perspective. The
companies are all losing money, and their core product is available for
free. Red Hat in particular hopes to boost their support business to pay for
the software, but have not been able to achieve that so far. Their largest
source of revenue is selling CDs ($70 retail), that come with limited
support. Their web site, which they hope to transform into a portal, is not
generating much of their revenue yet.

VA Linux is trying to sell servers running Linux. In that space, they
compete with conventional PC vendors Dell and Compaq, as well as various
server vendors. They specifically target the server market, where the
machines are made to fit into rack mount multi-server systems. Toward that
end, they probably stand a better chance of survival than the software
vendors, who are left competing with free downloads. Still, VA Linux is
competing with some very strong competitors, and their future is not at all
guaranteed.

I've heard of some profitable Linux/open source companies out there, but I'm
not aware of any that are public, and let's face it: the problem with open
source as an investment is that it's hard to make any money selling your
software when it can be downloaded at no charge.

By way of comparison: in their most recent quarter, Microsoft reported EPS
of $0.43 per share ($2.385B total). Dell reported earnings of $0.64

 
 
 

Linux as an investment

Post by Mike » Sun, 31 Dec 1899 09:00:00



Quote:

> By way of comparison: in their most recent quarter, Microsoft reported EPS
> of $0.43 per share ($2.385B total). Dell reported earnings of $0.64

[Sorry - cut off the end before sending]

...Dell reported earnings of $0.64 ($603M total). Dell's revenue was $7.7B
in the most recent quarter, and Microsoft's revenue was $5.6B.

What the Linux vendors need to gain respect on Wall Street is profits, but
it's not clear yet how they will achieve high profits on high sales.
Attempts to sell support have met with limited success, and with successful
support vendors like IBM entering the Linux support market, Linux specific
companies are going to face even more intense competition.

The shrink wrapped product is of limited value, since it's competing with
free downloads.

Companies like Red Hat are left trying to work out support agreements with
corporations, who aren't so concerned about the price of the software. Red
Hat doesn't sell the applications like IBM and others do, so they can't
bundle the application with the OS and charge a bundled support price. IBM
can sell support for the application software package, which is generally
much more lucrative than support for the OS. And, if you're going to run an
IBM application, you might as well let them sell you the application and the
OS - and bring the system coverage together.

I haven't figured out this business plan yet, and apparently neither have
the Linux vendors. Watch for more changes in strategy to come, as Wall
Street grows impatient.

-- Mike --

 
 
 

Linux as an investment

Post by Bobby D. Bryan » Sun, 31 Dec 1899 09:00:00



> I'm thinking that Linuz will be a good financial investment in the long
> term. Microsoft has proved very profitable for many, why not Linux? Does
> anyone have suggestions as who is likely to be profitable as an
> investment in Linux? I've heard Red Hat is public, but I don't know much
> more than that. Suggestions?

Unlike certain other operating systems, Linux is designed to be *used*
rather than to be *sold*.  Thus it cannot be expected to generate much
long-term interest on the stock market.

Likewise, the openness of Linux makes it hard for a vendor to corner the
market on it, which again makes it unlikely that a given vendor will
generate much long-term interest on the stock market.

Moreover, open-source software has put IT into a period of turmoil.  It is
very hard to predict how things are going to shake out.  Even if Linux
"wins" -- as it already appears to be doing in the server market -- it is
quite possible that all the current Linux vendors will disappear and be
replaced by new vendors sometime within the next few years.  So it's really
hard to single one out as a good long-term investment.

There was a brief "Linux IPO" craze last year, and lots of people
apparently got rich off it, but now the new has worn off and expectations
are more realistic, so I would not bank much on having the same thing
happen to future IPOs.

You mention Microsoft's profitability, but you should compare what there
shares are going for now vs 9-18 months ago.  Some people have positively
bled by buying in at the wrong time.

I am not a financial analyst, but I would be extremely careful about how I
invested in IT right now.  We may still be coming down off an overinflated
bubble in IT stocks.  We may see a temporary downturn resulting from
election-year jitters.  We may see a longer-term downturn if investors lack
confidence in the new administration's ability to keep the economy
booming.  Frankly, I suspect Treasury Bonds would be a better investment
than Linux stocks right now.

OTOH, Linux is IMO good for the economy at large, because it lets
businesses get part of their IT done on the cheap, and they can spend the
saved money on important things like R&D, lower prices, or bigger yachts
for the shareholders.  In that light, you may be able to pick a stock at
random and see it do better than it would have otherwise, due to "the Linux
factor".

Bobby Bryant
Austin, Texas

 
 
 

Linux as an investment

Post by Donovan Rebbec » Sun, 31 Dec 1899 09:00:00


You left out APLX. Haven't checked them for a while, but they're more stable
and not as hype driven.

--
Donovan

 
 
 

Linux as an investment

Post by Rex Ballar » Sun, 31 Dec 1899 09:00:00




Quote:> I'm thinking that Linux will be a good
> financial investment in the long
> term. Microsoft has proved very
> profitable for many, why not Linux?

In the long term you are correct.  There will be a period of
volitility, and Linux growth is rather cyclical.  There's a
great deal of Linux activity in late summer through the end
of the year, and Microsoft turns on it's "hype machine" around
March or April to promote what it intends to release anytime before
August (since Microsoft's fiscal year ends in August, a delay beyond
this impacts the annual report).

Quote:> Does anyone have suggestions as who
> is likely to be profitable as an
> investment in Linux?

Even if I had an opinion, making reccomendations, even in a group
like this is treading thin ice with the Securities and Exchange
commission.

Quote:> I've heard Red Hat is public,
> but I don't know much
> more than that. Suggestions?

Here are some that I watch/play/dabble in.

Red Hat  (RHAT) - sells Linux, Service, and Support contracts.
Caldera  (CALD) - sells Linux, Service, and Support contracts
Applix   (APLX) - Sells Linux Office suite - also financial analysis
                  software to mutual fund managers.
Inprise  (INPR) - Former Borland and Visigenics - very pro-linux.
ESoft    (ESFT) - Service based model.
Cobalt   (COBT) - Linux Appliance server - configurable via web browser.
VA Linux (LNUX) - Linux service provided - level 2-4 support to other
                  companies.  Also provides/supports Slackware.
SCO (SCOC) - SCO is adding Linux to it's reperatoire of Franchise
             and Branch Office Support.  Caldera is taking part of
             their business.

IBM (IBM) - very aggressively and publicly embracing Linux.  Also
   providing smoother path from Linux to AIX.

Hewlet Packard (HWP) - embracing Linux, but more cautiously.  Again,
   hoping to leverage Linux presence into HP/9000 sales.

Pearl  (PERL) - an accident - they make telecomm cards that give
Linux powered PCs many of the capabilities of a CISCO router at
a fraction of the price.

Most of these stocks went nuts back in september of last year, peaked
around February, and have pretty much fizzled near their lows.

A riskier play is to play the volitility of Microsoft dependent
stocks such as MSFT or CMGI, and play the swings.  It's real
easy to get caught in a down-draft, but if you're into day trading,
the swings can be as much as 20%/day.  I'm just not that fond of
roller coaster rides.

Each of these companies has some stake in Linux and could gain
some benefit if Linux really takes off in the corporate market.
Mostly the profits will be in consulting and services.

This probably isn't an exhaustive list, and as always, there
are no ways to accurately predict when, or even if, any of these
stocks will suddenly bubble up like they did last year.

--
Rex Ballard - I/T Architect, MIS Director
Linux Advocate, Internet Pioneer
http://www.open4success.com
Linux - 42 million satisfied users worldwide
and growing at over 5%/month! (recalibrated 8/2/00)

Sent via Deja.com http://www.deja.com/
Before you buy.

 
 
 

Linux as an investment

Post by Rex Ballar » Sun, 31 Dec 1899 09:00:00






> Why not Linux? I dunno.... maybe, profits?

Revenue growth?

Quote:> Let's look at four Linux plays:

> VA Linux Systems (LNUX): Down from 320, it closed at 38 15/16 today.
> EPS: -2.01

Revenue QE 4/00 34.5 Million   QE 4/99 4.3 Million - up 895% Wow!

Quote:> Red Hat (RHAT): Down from 151 5/16, it closed at 19 3/8 today. EPS:

-0.42

Revenue QE 5/00 16 Million  QE 5/99 2.8 million up 571%  - Nice!

Quote:> Caldera (CALD): Down from 33, it closed at 6 1/8 today. EPS: -0.79

Revenue QE 4/00  1,122 K   QE 4/99 481 K  up only 233%

Quote:> Corel (CORL): Down from 44 1/2, it closed at 2 15/16 today. EPS: -0.19

Got me there:

Revenue QE 5/00  36 Million  QE 5/99 70 Million  - down 51%  but

this may have been because of the Microsoft versions of Corel Office
that sold like hotcakes when Win98/Works came out.

Speaking of Microsoft:

Quote:> By way of comparison: in their most recent quarter,
> Microsoft reported EPS
> of $0.43 per share ($2.385B total).

Revenue  QE 6/00 $5.8 Billion  QE 6/99  6.5 Billion - OOPS!

Numbers taken from Thompson, TIBCO, and Edgar (mynetscape.com) .

--
Rex Ballard - I/T Architect, MIS Director
Linux Advocate, Internet Pioneer
http://www.open4success.com
Linux - 42 million satisfied users worldwide
and growing at over 5%/month! (recalibrated 8/2/00)

Sent via Deja.com http://www.deja.com/
Before you buy.

 
 
 

Linux as an investment

Post by Mike » Sun, 31 Dec 1899 09:00:00




> You left out APLX. Haven't checked them for a while, but they're more
stable
> and not as hype driven.

You're right, and they've been around since long before Linux - they were
incorporated in 1983.

But things don't look good. They are losing money, and one of their key
products, Applixware, is declining in sales, which they expect to continue.
For their latest quarter, total revenue decreased 18% to $11,646,000, fom
$14,152,000 for the same quarter last year. They also say that license
revenue decreased 29% to $6,101,000 for the latest quarter, from $8,545,000
for the same quarter last year. This decline was primarily due to a
$2,847,000 decrease in Applixware products versus the same quarter last
year.

Their stock closed at 4 today, down from a high of 26 11/16. Their EPS
is -0.25.

As with the other Linux plays, it doesn't look very compelling from an
investment perspective.

I'm sure there are other companies I've overlooked. If we ignore IBM and HP,
whose Linux business is fairly small compared to the rest of the company,
are there any public companies that primarily sell or support Linux that
make compelling investments?

-- Mike --

 
 
 

Linux as an investment

Post by Mike » Sun, 31 Dec 1899 09:00:00








> > Why not Linux? I dunno.... maybe, profits?

> Revenue growth?

Far be it for me to tell anyone how to analyze companies, but revenue growth
is generally a riskier indicator than profits.

Having said that, EPS isn't necessarily a good indicator of corporate health
either, especially not for stocks in new industries. What you're really
hoping for with these companies is that the revenue growth will keep
expanding, and that profits will follow once revenue is large enough to
generate more profits than the fixed costs chew up. The stock performance
reflects increasing doubt about that scenario.

These companies _may_ turn profitable, but you are taking a substantial
risk. Red Hat's stock was beaten down pretty badly a few months ago after a
quarter that looked good from a revenue point of view. But, their costs as a
percentage of sales have increased, and their quarter over quarter revenue
expansion has slowed significantly (even though year over year looks pretty
impressive). This may be a short term trend, or may be due to mitigating
factors. If not, then their stock is in for a continued rough ride.

-- Mike --

 
 
 

Linux as an investment

Post by Aaron R. Kulki » Sun, 31 Dec 1899 09:00:00









> > > Why not Linux? I dunno.... maybe, profits?

> > Revenue growth?

> Far be it for me to tell anyone how to analyze companies, but revenue growth
> is generally a riskier indicator than profits.

Revenue growth DOES mean that the market, as a whole, is putting more
and more resources into purchasing your product and/or services.

- Show quoted text -

Quote:

> Having said that, EPS isn't necessarily a good indicator of corporate health
> either, especially not for stocks in new industries. What you're really
> hoping for with these companies is that the revenue growth will keep
> expanding, and that profits will follow once revenue is large enough to
> generate more profits than the fixed costs chew up. The stock performance
> reflects increasing doubt about that scenario.

> These companies _may_ turn profitable, but you are taking a substantial
> risk. Red Hat's stock was beaten down pretty badly a few months ago after a
> quarter that looked good from a revenue point of view. But, their costs as a
> percentage of sales have increased, and their quarter over quarter revenue
> expansion has slowed significantly (even though year over year looks pretty
> impressive). This may be a short term trend, or may be due to mitigating
> factors. If not, then their stock is in for a continued rough ride.

> -- Mike --

--
Aaron R. Kulkis
Unix Systems Engineer
ICQ # 3056642

I: "Having found not one single carbon monoxide leak on the entire
    premises, it is my belief, and Willard concurs, that the reason
    you folks feel listless and disoriented is simply because
    you are lazy, stupid people"

J: Loren Petrich's 2-week stubborn refusal to respond to the
   challenge to describe even one philosophical difference
   between himself and the communists demonstrates that, in fact,
   Loren Petrich is a COMMUNIST ***hole

A:  The wise man is mocked by fools.

B: "Jeem" Dutton is a fool of the pathological liar sort.

C: Jet plays the fool and spews out nonsense as a method of
   sidetracking discussions which are headed in a direction
   that she doesn't like.

D: Jet claims to have killfiled me.

E: Jet now follows me from newgroup to newsgroup
   ...despite (D) above.

F: Neither Jeem nor Jet are worthy of the time to compose a
   response until their behavior improves.

G: Unit_4's "Kook hunt" reminds me of "Jimmy Baker's" harangues against
   *ery while concurrently committing *ery with Tammy Hahn.

H:  Knackos...you're a retard.

 
 
 

Linux as an investment

Post by Jeff Szark » Sun, 31 Dec 1899 09:00:00




Quote:>Does
>anyone have suggestions as who is likely to be profitable as an
>investment in Linux?

I don't think Linux on the desktop will ever be profitable. So
personally I'd look for a compnay who either is avoding it all
together or has a good server / high-end plan as well.

<insert questions of why Linux will never be profitable in the desktop
market here>

All technical / ease of use questions aside... Consumers aren't very
stupid when it comes to prices. 0$ or $50-$100... Hmm hard choice.
Broadband and CDRs make it even worse.

One of the biggest problems Microsoft faces is convincing users
upgrades are worth buying. A lot of their business comes from
upgrades. This is the main reason they want to move to subscription
based software licesning... or that's the rumor at least. With Linux,
weighting features vs. price is totally pointless. It's features vs.
time + problems you might have. Even if you offer a great upgrade,
feature wise, the user still has pretty much no reason to buy it.

I could see desktop Linux users buying their first copy from say..
Staples but... Once they learned how to use it why wouldn't they just
ftp ftp.redhat.com ? Why should a OEM partner with Redhat when they
can do all their support in house? Assuming Linux ever becomes popular
enough to justify the cost.

Now on the server end, where the OS is the least of your problems
there could be some good money made.

 
 
 

Linux as an investment

Post by Jeff Szark » Sun, 31 Dec 1899 09:00:00



>I haven't figured out this business plan yet, and apparently neither have
>the Linux vendors. Watch for more changes in strategy to come, as Wall
>Street grows impatient.

This is exactly what I was getting at in my other post. (dated a few
minutes before this one)

The point is that..  Linux companies are really going in to
unchartered territory. I can't think of any area in which a company
has tried to sell a free product. Except maybe...

Bottled water. Sure. Water is mostly free. Hell, it's even open source
(H2o) why does it make money?

Most water is dirty. If spring water ran from every tap Poland Springs
and others would be out of business. The Linux you're supposed to pay
$80 bucks for is the same that you can get for free plus the cost of a
CDR.

Linux stocks would have been much more successful if they would have
arrived 5 years ago when broadband was rare. Although, cheapbytes.com
would still exist.

The only thing you can make money off of that is free is sex and
water.

 
 
 

Linux as an investment

Post by Jeff Szark » Sun, 31 Dec 1899 09:00:00


On Sat, 12 Aug 2000 21:20:11 -0400, "Aaron R. Kulkis"


>> Far be it for me to tell anyone how to analyze companies, but revenue growth
>> is generally a riskier indicator than profits.

>Revenue growth DOES mean that the market, as a whole, is putting more
>and more resources into purchasing your product and/or services.

Yea but when you start at nothing there is only one way but up.
 
 
 

Linux as an investment

Post by Jeff Szark » Sun, 31 Dec 1899 09:00:00


On Fri, 11 Aug 2000 10:06:15 -0500, "Bobby D. Bryant"


>> I'm thinking that Linuz will be a good financial investment in the long
>> term. Microsoft has proved very profitable for many, why not Linux? Does
>> anyone have suggestions as who is likely to be profitable as an
>> investment in Linux? I've heard Red Hat is public, but I don't know much
>> more than that. Suggestions?

>Unlike certain other operating systems, Linux is designed to be *used*
>rather than to be *sold*.  Thus it cannot be expected to generate much
>long-term interest on the stock market.

And you expect any OS with no finical backing to be successful?

There is no one left to do the dirty work. Aka, print the manuals, buy
the ads, write the consumer apps no one cares about, etc, etc.

This is why, I think Linux should have used a BSD style license. This
way at least one company would be making all this money. Support, some
user revenue, etc. When it is spread out over 10+ companies none of
them really make enough money to stay afloat.

 
 
 

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