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Red Hat's IPO filingRed Hat Inc. filed for its initial public offering (IPO) of stock on June 4. For those who do not want to plow through the entire filing, here is a list of highlights. It is not intended to be a thorough analysis of the document by any means - just a list of interesting things.
First of all, most of the numbers are still missing. This is evidently common practice; they will be filled in via an amended filing closer to the actual IPO. So, in particular, there is currently no information on what percentage of the company they intend to offer for sale. Current practice for high-tech stocks is to make that percentage small - it keeps most of the ownership in its current hands, and tends to drive the price up by limiting the supply of stock.
Traffic on Red Hat's web site was 2.5 million page views from 265,000 unique visitors in March, 1999.
Red Hat's strategy from the filing:
There is a financial table which appears to indicate that Red Hat has, over the course of its existence, lost roughly $372,000. In 1995, they had a $128,000 loss on revenues of $482,000. In 1999 (their fiscal year ends in February) they lost $130,000 on revenues of just under $11 million. There are currently almost 44 million shares of stock outstanding.
There is a set of risk factors, things that potential investors should worry about. The list may look scary - it's supposed to. Red Hat is supposed to think up everything that could go wrong here. Here's some of the things they came up with:
Dividends. Red Hat has never paid any, and has no plans to anytime soon.
Sources of income. Red Hat wants to increase its services business, but it's almost insignificant now: in 1999 they brought in $10,000,000 from software sales, and $777,000 from services.
Expenses. They spent just over $3 million in sales and marketing in 1999. Research and Development falls behind that, at $2.2 million.
Staff. They currently employ 127 people; on March 1, 1998, instead, the number was 36. They expect to need to move to new offices in 12-18 months. The breakdown of their employees is: Software Engineering: 52, Sales and Marketing: 30, Customer service: 28, Finance and administration: 17.
Year 2000 compliance. They have done testing of various versions of their distribution, and have also hired an independent company to test 5.2 and 6.0. This testing is still happening, and should be complete by the end of this month. They do not have a contingency plan if the 6.0 release turns out to have Y2K problems, but they are not too worried about it.
Their internal assessment (looking at the systems they use to run the business) is running late - it is still in progress as of the filing date. That leaves them with not much time if something serious turns up. Again, they seem not to be worried; they use Linux for their internal operations.
The web site currently has "20 professionals" working on it. Their plans for the web site include: personalizations ("my.redhat.com" - really), advertising and sponsorships, content subscriptions (things like "market reports" and support will be available - for a fee), e-commerce, and licensing of their content to other content providers.
Distributors. The two biggest distributors of Red Hat Linux are now Ingram Micro and Frank Kasper and Associates. The various Linux-specific distributors out there do not figure into the picture. They also list OEM agreements with Dell, ASL Workstations, and CPU Micromart.
Competitors. For operating systems in general they list Microsoft, Novell, IBM, Sun, and so on. The usual crowd. In the Linux world, they worry about competition from Sun, Corel, and Cygnus. There is no mention in the document of the other companies currently in the Linux distribution business (such as Caldera, SuSE, or TurboLinux). Evidently none of the other distributors currently are seen as a real competitor.
Who owns Red Hat stock. The biggest stockholders are as follows. Percentages are before the IPO; afterwards they will drop, but the numbers are not there yet:
Notable in their absence is the whole list of companies which have invested in Red Hat over the last several months: IBM, Dell, Compaq, Netscape, etc. None of them bought a stake large enough to make this list.
Much more information can be found in the filing, of course.
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