(December 10) – “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,” reports Lawrence Fisher in The New York Times this morning.
“The company, VA Linux Systems of Sunnyvale, Calif., sells computers powered by standard Intel Pentium processors that run on Linux, the free Unix-based operating system created by a Finnish graduate student and now marketed by more than a dozen companies worldwide. The computers are designed as servers, computers that deliver Internet products, like Web pages and e-mail, or other network services.
“Though giants like Dell Computer and I.B.M. already market Linux servers of similar power, shares of VA Linux Systems surged more than eightfold today, setting a record for an initial public offering.
“The company sold 4.4 million shares, an 11 percent stake, priced at $30 a share, raising $132 million. The shares opened at $300, and closed at $242.375 in Nasdaq trading.
“The appetite for shares of companies that deal in Linux products and services has been enormous this year, and those stocks shared in today’s largess. Shares in Red Hat, a Linux distributor, have soared 20-fold since the company went public Aug. 11 and rose $16.50, to $287, today. Andover.Net, which runs a network of Web sites devoted to Linux, has more than quadrupled since its initial offering on Wednesday, gaining $14.8125, to close at $78.8125. The Corel Corporation, which sells software that runs on the Linux system, most notably a Linux version of its WordPerfect document creation software, rose $11.25, to $39.375, after trading as low as $2 in the last year.
“VA Linux has never made money and does not expect to for some time.
“As the company’s prospectus points out: ‘We do not expect to generate sufficient revenues to achieve profitability and, therefore, we expect to continue to incur net losses for at least the foreseeable future. If we do achieve profitability, we may not be able to sustain it.’
No problem, said the stampeding market.
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