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Why are the "Linux Stocks" performing so poorly?

By evro in News
Wed Apr 12, 2000 at 07:21:37 PM EST
Tags: Round Table (all tags)
Round Table

I have been wondering for a while why the "Linux stocks" -- VA, RedHat, Corel, and Caldera -- have been doing so poorly. While it is true that they are overvalued, these stocks are doing worse than other tech stocks that are also phenomenally overvalued (see this chart for a comparison with the Nasdaq). So I was wondering, has Wall Street lost all faith in Linux? Contrary to what most people seem to think, I think maintaining stock value (as a representative of confidence in the company/industry/community) is important if Linux is to be taken seriously by corporate America. So does anybody have any theories (aside from the obvious: they're selling something that's free)? Why is Linux doing so much worse than other tech/dotcom stocks? Remedies? Any end in sight?


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Why are the "Linux Stocks" performing so poorly? | 30 comments (30 topical, editorial, 0 hidden)
I do not believe that the performan... (3.00 / 1) (#3)
by Philipp on Wed Apr 12, 2000 at 02:57:04 PM EST

Philipp voted 1 on this story.

I do not believe that the performance of RedHat and VA Linux is neccessary for the well-being of Linux. It is much more interesting what IBM, TiVO and others are doing: incorporating Linux into their products. This will create the infrastructure for Linux.

alias kn 'killall -9 netscape-communicator'

Re: I do not believe that the performan... (3.00 / 1) (#10)
by evro on Wed Apr 12, 2000 at 09:21:29 PM EST

I guess it depends on your definition of "the well being of Linux." While I don't think it will affect kernel development or anything like that, if the stock -- Wall Street's confidence meter -- keeps sinking, Linux may appear too unstable an option for many corporations considering it. IBM and Intel have "embraced" Linux, as have other companies, but unless more people start using it it will be destined to be "that OS hackers/sysadmins use." Incorporating Linux with things like TiVo is good, but who (consumers) would even know Linux is there? Does the penguin come up when you turn it on? Embedded Linux is cool, but if people don't know it's there it doesn't help with awareness.
---
"Asking me who to follow -- don't ask me, I don't know!"
[ Parent ]
I'd say it's because all the get-ri... (none / 0) (#4)
by fluffy grue on Wed Apr 12, 2000 at 03:00:50 PM EST

fluffy grue voted 1 on this story.

I'd say it's because all the get-rich-quick investors have gotten jaded or all committed suicide after losing the farm on volatile tech stocks. This can even be seen at Winner Picks, the bandwagon-hype site I reported on a few weeks ago. Not only has their performance fallen off (when I mentioned them was the last time they broke 100% return), now their stock picks are LOSING money (of course, their "past performance" page doesn't disclose this fact), and in fact they've stopped offering picks for a few weeks until the market conditions improve (i.e. they have a lot of overconfident saps again). I think this is related to the recent sell-off of tech stocks. Notice that Compaq is still doing well, though, according to that chart - they're a long-term established company, not one of these recent volatile get-rich-quick types of stocks. Notice that other similar companies, such as Cisco and Oracle, are performing in the same category as Compaq.
--
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]

Re: I'd say it's because all the get-ri... (none / 0) (#8)
by evro on Wed Apr 12, 2000 at 08:19:09 PM EST

Notice that Compaq is still doing well, though, according to that chart - they're a long-term established company, not one of these recent volatile get-rich-quick types of stocks. Notice that other similar companies, such as Cisco and Oracle, are performing in the same category as Compaq.

If you're referring to the $COMPQ in the chart, it actually isn't the symbol for Compaq (CPQ), but for the Nasdaq composite index itself. I just wanted to show that even with the market being so bearish, it's still way above RHAT, LNUX, etc.
---
"Asking me who to follow -- don't ask me, I don't know!"
[ Parent ]

Re: I'd say it's because all the get-ri... (none / 0) (#28)
by fluffy grue on Thu Apr 13, 2000 at 11:57:24 AM EST

Ah, I misunderstood the chard. However, Cisco and Oracle are following the composite just fine anyway. :) (I'd have linked to charts but I couldn't figure out how to easily get the chart in a GET format and didn't feel like viewing the HTML source.)
--
"Is not a quine" is not a quine.
I have a master's degree in science!

[ Hug Your Trikuare ]
[ Parent ]

GETting the wired chart... (none / 0) (#30)
by evro on Fri Apr 14, 2000 at 01:43:19 AM EST

Actually, what I ended up doing was viewing a chart, then saving the HTML, then editing it and changing the POST to a GET. 'twas the easiest way. Oh, and you have to add stocks.wired.com to the action.
---
"Asking me who to follow -- don't ask me, I don't know!"
[ Parent ]
They are probably failing because i... (none / 0) (#5)
by angelo on Wed Apr 12, 2000 at 03:35:57 PM EST

angelo voted 1 on this story.

They are probably failing because investors are waking up. I'm wondering when they will wake up in regards to loss leader warehouses like e-toys and amazon and they lose most of their value. The same phonomenon of "on the internet" or "with a computer" in patents has spread to the internet. Kozmo is the first service that I have seen that actually isn't a me too proposition. Red Hat is the original Linux stock, but I don't keep track. Andover shows some serious growth, and may be a big services contender. Time will tell.
lowmagnet.org

Re: They are probably failing because i... (none / 0) (#7)
by rusty on Wed Apr 12, 2000 at 07:29:39 PM EST

Funny you should mention Kozmo. I loooove them. I am moved, frequently, to write odes to them, and whatnot. But I never do. :-) If anyone has a chance of surviving with a web based business model, it's Kozmo. And if you live in a largish US city and you haven't found out yet if they serve you-- find out now! My life has improved greatly since I discovered Kozmo. :-)

____
Not the real rusty
[ Parent ]
Re: They are probably failing because i... (none / 0) (#11)
by evro on Wed Apr 12, 2000 at 09:30:23 PM EST

Funny you should mention Kozmo... Some people don't seem to think as highly of it as you. The idea is cool, but for groceries why not just use peapod?

My girlfriend and I almost used them one day (even we aren't normally that lazy, and we're pretty damn lazy), but we were thinking: you know when you buy apples or melons or meat or something, you look at it, feel it, shake it to make sure it "looks ok"? Well, if you order online ya can't do that. Unless you have the guy strap a webcam onto his head and rollerblade through the aisles (as some place in france is doing, apparently). But if I say I want a 2 lb. flank steak, I want to be there to make sure I get a good one. Eventually I will probably relent, but right now I think I'll be going to the store.

Then again, we don't live in Manhattan, and I don't know what grocery shopping there must be like (hell, I would imagine), so maybe it's well worth it there.
---
"Asking me who to follow -- don't ask me, I don't know!"
[ Parent ]

Re: They are probably failing because i... (none / 0) (#12)
by rusty on Wed Apr 12, 2000 at 09:42:11 PM EST

Peapod doesn't deliver to my house. There are several grocery delivery companies that do, but they require you to have a freezer in some location they can get to, and I live in an apartment. In any case, that's not what Kozmo delivers anyway-- they do movies and books and, well, toothpaste and stuff.

As for the poster, no one said they had to have their toothpaste delivered.com. :-) Some of us would rather spend time hacking than going to the store for some consumer item. I bet they'd have time to make lots more clever posters if they didn't have to go shopping all the time. But then, maybe clever poster artists just don't brush their teeth.

Ooh. I'm sorry about that. I'm feeling mean tonight. >:-)

____
Not the real rusty
[ Parent ]

I don't see it.. (none / 0) (#18)
by angelo on Thu Apr 13, 2000 at 07:42:44 AM EST

I don't really care much for the methods of blowthdotcomoutyourass.com because 1) they have a .com, not an org like they should. 2) they are even more high and mighty than I can get. Considering I'm a semantic HTML person, and I believe most sites to be evil for bad style (amazon etc) I find that annoying.. but dot coms? Kozmo is more real world than amazon. Amazon is disconnected, Kozmo is click and mortar.

No, my major problem is with UNORIGINAL .coms, not with the unique ones.


lowmagnet.org
[ Parent ]
ANDN sucks too (none / 0) (#16)
by evro on Thu Apr 13, 2000 at 01:50:36 AM EST

I don't think Andover is "showing growth," they bought Slashdot and filed for their IPO practically the next day. Somewhere in there they also got Freshmeat. Since then, what? ANDN is doing just as poorly as any of the other Linux companies (including Andover parent VA Linux).
---
"Asking me who to follow -- don't ask me, I don't know!"
[ Parent ]
Re: ANDN sucks too (none / 0) (#20)
by rusty on Thu Apr 13, 2000 at 11:18:03 AM EST

And, really, ANDN isn't even a linux company. They're a media company-- lumping them in with linux companies would be like calling ZDNet a "Windows company."

____
Not the real rusty
[ Parent ]
Re: ANDN sucks too (none / 0) (#26)
by evro on Thu Apr 13, 2000 at 10:55:35 AM EST

That's true. But Slashdot is a recognized and important name in the Open Source / Linux world. When I think of Andover, I think of "Slashdot's Owner," though I think Slashdot composes only 40% of their holdings. But Slashdot and Freshmeat are the only things I know of that they run/own/whatever, so I tend to think of them as in the realm of Linux companies, though they don't really have a Linux product (discounting Slash, which isn't really a "Linux product" per se; but regardless, it isn't the focus of the site. Then again, this may be changing now with slashcode.com.).

Then again, if not for the communication afforded by the Internet, Linux would never have come about, so maybe "community" sites like Slashdot are just as important to Linux as the kernel-hacking folks.

But regarding your other point, until recently I could've sworn ZDNet (and C|NET to a lesser extent) were Windows companies.
---
"Asking me who to follow -- don't ask me, I don't know!"
[ Parent ]

Re: ANDN sucks too (none / 0) (#29)
by rusty on Thu Apr 13, 2000 at 05:01:32 PM EST

Yeah, I understand and agree with all that, *but* from a stock-value perspective, the only way Linux's success affects /. is if it takes a sudden precipitous nosedive in popularity on the net. Which I don't think is tied to the stock market at all. How many linux enthusiasts got into it because of stock value? I mean hacker-types, not people who are enthusiastic about buying linux stock. It's like the old saying that no one ever became a communist by reading Marx. :-)

____
Not the real rusty
[ Parent ]
Actually this might be a bad time t... (4.00 / 1) (#2)
by Emacs on Wed Apr 12, 2000 at 03:43:00 PM EST

Emacs voted 1 on this story.

Actually this might be a bad time to discuss this due to the woes of the Nasdaq latelty, but I would say the bottom line is that many of the stocks were overvalued from the start. The ability for these companies to actually produce a profit has yet to be proven and I think we might be seeing the backlash effect of all the "hype" that was driving these prices up in the first place. Does anybody actually think that VALinux was worth 300 per share?

Perhaps investors in Linux companie... (none / 0) (#6)
by prevostjm on Wed Apr 12, 2000 at 04:36:49 PM EST

prevostjm voted 0 on this story.

Perhaps investors in Linux companies are being sane, unlike buyers of other overpriced "new economy" stocks.

Std_disclaimer: I own stock in some... (none / 0) (#1)
by joeyo on Wed Apr 12, 2000 at 07:08:07 PM EST

joeyo voted 1 on this story.

Std_disclaimer: I own stock in some linux companies

This is something which has been personally concerning me recently. And truthfully I'm not really sure why the linux companies are doing so badly. In the case of Redhat it seems to be some serious profit taking- it didn't start to really decline until the split. Also, the 'daq been limping since the start of the year so it's hard to really tell what's really going on. But I'm hoping (fingers crossed) that things will pick up as linux marches slowly but surely on its path to Total World Domination.

BTW, now would be a good time to get your hands on some cheap linux stocks... nudge nudge... :)

--
"Give me enough variables to work with, and I can probably do away with the notion of human free will." -- demi

Re: Why are the "Linux Stocks" performing so poorl (none / 0) (#9)
by soulhuntre on Wed Apr 12, 2000 at 08:25:44 PM EST

The reason is very easy to ascertain... there is no good way yet to support the
kind of R&D effort the Linux firms are putting out when you have to give the
results away for free.

No company has yet found a model that lets them make a profit within the terms
of the GPL, and I doubt they ever will.

This is vastly different than other "lossy" internet stocks like Amazon and so
on... Amazon's R&D budget is large but they get to keep that value inside the
firm, they do NOT have to give their code away to their competitors like the
Linux "OS" companies.

Redhat is a good example, it must keep pouring massive $$$'s into their
distribution - developing what would in any sane situation be producing
valuable intellectual property - and then give it away so their direct
competitors can use it.

Not a way to make a living.

Ken


Re: Why are the "Linux Stocks" performing so poorl (4.00 / 3) (#13)
by bgdarnel on Wed Apr 12, 2000 at 10:57:53 PM EST

To repeat what several others have said, it's not that Linux-related stocks are doing poorly, it's that they were outrageously priced at the beginning and are now returning to more reasonable levels. This is not to say that Linux stocks are more unreasonable than others, but that they are no longer the objects of infatuation which garner undeservedly-high prices.

I have been following VA more closely than the rest, because I got in on the IPO. I sold some a while ago (over 100), but held on to the rest because I thought the stock was about to hit bottom. I finally sold the rest a few days ago, because I'm now convinced that, unless investors return to their late-1999 irrationality, it's still got a long way to fall.

My reasons for getting out: VA has nothing that Compaq and other companies can't acquire (at least nothing directly profitable. VA has earned the respect of the hacker community with ventures like SourceForge, which is great, but displays of benevolence don't do much for the stock price). They presumably know more about Linux than any other company in their market does at this time, but there is no reason to expect other companies to sit idly by. As the demand for Linux increases, Compaq and friends will devote more resources to it. Therefore, VA has first-mover advantage, but nothing to distinguish thier long-term prospects from other companies. As this article shows, even at this early stage of the game, VA isn't even in the top 5 sellers of Linux servers. If people already trust Compaq more than VA for Linux servers, what leverage does VA have to draw customers away from them?

I still think that VA will continue to grow at a reasonable rate, I just don't think it deserves a multi-billion dollar market cap at this time.

Re: Why are the "Linux Stocks" performing so poorl (none / 0) (#14)
by cthulhu on Wed Apr 12, 2000 at 11:48:21 PM EST

Not to mention that the market is progressively becoming more wary of problems like Sanga. Although these vaporware and shell companies don't impact institutional investors as significantly, they still set a tone for the market segment.

Finally, you have to remember that there are two components (simplified version) to a stock's valuation. The first is the component that represents the company's current financial position. The second component represents a amortized present value of the company's expected future profits.

If you look at a price/net assets ratio, you'll see that most tech companies pricing relies heavily upon the second component. That component can be heavily influenced by current market trends, projections, 'heard on the street', etc.



Quality... (none / 0) (#15)
by pulsar on Thu Apr 13, 2000 at 12:20:44 AM EST

I wish these compaines that are coming into truck loads of money would spend a little more on quality! Has anyone used Red Hat lately? Pretty buggy IMO...

Re: Quality... (none / 0) (#17)
by Uri on Thu Apr 13, 2000 at 06:36:25 AM EST

If they did, we'd all be using Windows (and loving it!).

[ Parent ]
Re: Quality... (none / 0) (#19)
by rusty on Thu Apr 13, 2000 at 11:15:54 AM EST

The thing is, these companies *don't* have truckloads of money-- even when their stock was high. They have lots of high-priced stock. You can't pay programmers in stock, but you can buy other companies with it. So they acquire and acquire and acquire, in hopes that something will turn a profit before their overpriced stock tanks.

____
Not the real rusty
[ Parent ]
No truckloads of money (none / 0) (#25)
by error 404 on Thu Apr 13, 2000 at 12:41:00 PM EST

Exactly! By definition, RedHat sold their stock at the IPO price...
..................................
Electrical banana is bound to be the very next phase
- Donovan

[ Parent ]
Re: Quality... (none / 0) (#21)
by soulhuntre on Thu Apr 13, 2000 at 11:21:31 AM EST

How could RedHat possibly solve all the bugs and flaws in the Linux codebase?

The folks at RedHat do a good job, but they do not have the resources needed to audit the hundreds of thousands and millions of lines of code in their distribution, from 10 of organizations none of whome have central quality control and testing of their own.

As long as RedHat has no control of importance over the core of their product (the Linux kernal, the XWin codebase) they will always be subject to bugs and flaws beyond their control

Ken

[ Parent ]
Re: Quality... (1.00 / 1) (#23)
by pulsar on Thu Apr 13, 2000 at 11:39:27 AM EST

I disagree! You've got several other distros out there, most of which are more stable then Red Hat Linux. SuSE is more stable, Turbo Linux is more stable, etc. Then we come to Debian, Debian is more stable then all of the other distros and most other (non-Linux) operating systems. [I'm not trying to advocate Debian here] My point is, is you've got all these other distros that make less money or no money and have something that is more stable.

[ Parent ]
Re: Why are the "Linux Stocks" performing so poorl (none / 0) (#22)
by Paul Dunne on Thu Apr 13, 2000 at 11:34:10 AM EST

Something I like very much about Linux is that it doesn't matter a damn how well or how poorly "Linux stocks" (by which I presume we mean stocks issued by companies having something to do with Linux) perform in the stock market. Linux will still be around, no matter what: it won't die off if, for instance, RedHat stocks dip, or the company folds or get acquired.
http://dunne.home.dhs.org/
Re: Why are the "Linux Stocks" performing so poorl (3.00 / 1) (#27)
by Anonymous Hero on Thu Apr 13, 2000 at 11:41:41 AM EST

Don't discount the possibility that Microsoft has been pushing down the stock
(probably working through middlemen). If you're willing to lose some money,
it's not that hard to do. You just keep buying at the current price, then
turning around and offering to sell at a lower price.

When Red Hat's stock first started its current fall (around the end of March),
I suspected this might be the case, and predicted that the fall would be
accompanied by a FUD campaign. Sure enough, over the next couple of days, I
started reading astroturf posts about how "as Red Hat goes, so goes Linux", and
how "this proves Linux was just a flash in the pan".

The more recent market drop is most likely the result of Microsoft selling off
their other holdings in order to prop up their own stock. Most of those
holdings would have been in the high tech sector, and concentrated in their
competitors' stock (you can guess why). Hopefully it will end soon, despite
Microsoft's cash and stock reserves, because their stock will either quit
dropping, or they won't have any more non-MS stock to sell.


Re: Why are the "Linux Stocks" performing so poorl (none / 0) (#31)
by Anonymous Hero on Fri Apr 14, 2000 at 11:02:27 PM EST

They have no assets.  Investors care about assets in a company.

They tend not to be in the black.  While most .com companies have yet to really
have a burgeoning record of profits > expenditures + R&D, the linux
companies are not flying high.

Also, given general *trends* seen in NASDAQ, after an IPO, things drop rapidly.
 I feel, right now, that the Linux stocks are still overvalued, but relative to
the other stocks, not nearly as much.  VA was around the 40s when I saw it
last...to me, that's where they should be, not in the $200+ range.  Look at
Palm (no, not a Linux company) and see how their stock has come down after a
skyrocketing first day.  It's almost typical that in the first year after an
IPO is out, companies lose money.

That all said, I don't feel that Linux or even BSDs laurels rest with what
their stock value is or who the media darling is at the moment.  We are not
Sun; we work at our own pace, on our own schedules, and we do so steadily, w/o
much head to the squabbles of a public comapny, because we are the public
company.  In 8 years, we may be behind larger companies, and VA and Redhat may
be a little dot on the radar screen, but Linux will still be there and growing,
because that's what it does--it gets better on a core (Unix-like) that is used
by commercial companies, interests, and individuals.


Why are the "Linux Stocks" performing so poorly? | 30 comments (30 topical, 0 editorial, 0 hidden)
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