Investors may or may not know Linus Torvalds from a penguin, but they can't wait to snap up Linux-related stock. After VA Linux made stock market history yesterday with the biggest first-day gain ever - giving the company a market value of nearly $US10 billion - the media rushed in to explain What It All Means. Depending on what you read, it portends either that Linux is the future of computing or that investors have abandoned good sense to jump on the overcrowded open-source bandwagon.
Many reporters did agree that it's been a good week for several Linux-related companies, noting the stock success of Linux-related companies Andover.Net and Corel. There was some slight disagreement about the numbers, however. VA Linux priced at $30 and opened at $299 (or $320, according to CBS MarketWatch, or $300, said the New York Times). Then it closed at $239.25, rising 698 percent, wrote CBS MarketWatch, the LA Times, ZDNet, and TheStreet.com. Or it closed at $250, for a run-up of 733 per cent, according to the Wall Street Journal, Wired News and a Bloomberg report in USA Today. Finally, the San Jose Mercury News and New York Times reported a closing of $242.38. Let's make it simple: The stock went up, a lot.
The most scathing headline came from the New York Times: "A Tiny Company With Dim Prospects Goes Public With a Bang." Writer Lawrence Fisher might not have written his article's headline, but he's most likely responsible for the biting lead paragraph: "Internet mania reached new levels of frenzy Thursday as investors paid huge multiples on an initial public offering, giving a market value of almost $10 billion to a tiny company with powerful competitors, little revenue and no expectation of earnings in the foreseeable future." Ouch. The Merc's Cecilia Kang seemed almost as befuddled by VA Linux's success. "Linux is used on a mere 2.1 percent of PCs," Kang wrote. "[S]ceptics see [Linux] as too difficult to use and too limited in its capabilities" to go head-to-head with Microsoft. Joanna Glasner, reporting for the open-source-happy Wired News, posted an article surprisingly hard on VA Linux, calling it a "money-losing seller of servers and workstations equipped with the Linux operating system." She wrote, "Analysts said VA Linux's astounding IPO had less to do with the fundamentals of the company than with the general hoopla among investors about anything remotely tied to the Linux operating system."
Steve Gelsi at CBS MarketWatch reported good Linux PR. "It's seen as faster and cheaper than Microsoft's Windows NT," said Gelsi. "VA Linux is certainly capitalising on the belief that Linux can compete effectively against Microsoft's widely adopted offerings." Gelsi quoted obviously optimistic Red Hat Chairman Bob Young rather than the grumpy analysts other reporters chose. Bloomberg also went with the David and Goliath angle, calling VA Linux "the company that's challenging Microsoft with software and computers for the free Linux operating system." Well, not "the" company, but okay.
ZDNet turned in one of the more balanced pieces. Larry Dignan pointed out VA Linux's lack of profitability without snickering, explained the company's business approach (mostly hardware), and - just to even out the generally Linux-positive spin - gave some ink to analysts who called the Linux stock craze "absurd" and "goofball."
We hope Theglobe.com, the previous record-holder for the biggest IPO ever, enjoyed its time in the sun. But even the analysts opining - probably correctly - that Linux stocks are wildly overvalued must admit that VA Linux deserves the record more than Theglobe.com's amateur homepage factory.