Dennis Byron

Red Hat's Latest Acquisition Brings Multiples Back to Earth

Cameron

Thanks for the comment. As Sacha describes above, the idea is to try to figure out what the acquired company did or will do the year after it was acquired. As the blog post notes, lining up the years will never be perfect.

We will never know on JBoss but Red Hat SEC filings indicate its revenue actually declined after it was acquired. As for Qumrannet, the 5X is simply based on the Red Hat press release of September 4, 2008 announcing the deal.

Bigger point: the trend line has gone from unbelievably high to a more normal multiple traditionally assoicated with any young hot software company.

-- Dennis

Red Hat's Latest Acquisition Brings Multiples Back to Earth

User 255819 -

I say there is no such thing as an open source company because open source is a culture and a set of license terms and conditions, neither of which can be used to define a "company," especially one you would want to invest in (which is the point of SA after all).

Every so-called open source company I have looked at (as opposed to a group such as the Apache Software Foundation or the Mozilla Foundation) looks just like every other software business I have ever looked at; it just recognizes its revenue slightly differently (as explained by Sacha in the other comment above). I say slightly differently because even most of the so-called non-open-source software companies (e.g., SAP, Oracle, etc.) recognize most of their "software revenue" as subscriptions in the same way Red Hat does.

Sacha -

I understand your logic but I'm still a Jerry McGuire guy. When I said "we are not able to compare revenue-per-year totally fairly in all these acquisitions because the acquired companies were all private," I could have also added the disclaimer--that I use in my reports--that a total subscription-based revenue model understates market share. But I didn't think it mattered for this analysis because all the companies acquired kept their books this way, no?

So--if I used your method--the multiples are still going down dramatically, just from different highs.

(As for source, I'll send you an email.)

Red Hat Settles Patent Lawsuit

Update on who "won:"

According to another web site (www.hemscott.com/news/...) that seems to be tied to the LSE, Red Hat paid to settle the lawsuit with Firestar/Datatern, both of which are partnered (16.7%/100%) with Amphion.

Both Firestar and Datatern appear to offer technology for sale and are not apparently solely in the business of acquiring and maximizing patent values, which would seem to be what Red Hat means by a "patent aggressor." However, Amphion says Datatern was formed to " commercialise selected intellectual property opportunities, in partnership with its Partner Companies."

"As a result," according to the other web site referenced, "revenues directly attributable to Amphion from the license fee after costs are
approximately $800,000." Why Amphion is not tooting its horn a little more and letting Red Hat position itself as the winner is unclear.

Red Hat Settles Patent Lawsuit

I am trying to figure out the investment aspect of this move by Red Hat and admit I am struggling with for an opinion (which is why I didn't post one).

Of course, Red Hat says the settlement is not public information so we can't tell if money changed hands and, if so, in what direction. If Red Hat paid for these " precedent-setting rights," I am assuming it was a small amount given what this was about technically. My guess is that it paid.

However if Red Hat didn't have to pay (or even got the other guys to pick up legal fees), it's still small potatoes but it means more share-value-affecting posturing by Red Hat over IP philosophy, Open Standards (in upper case), and more of the "U.S. bashing is good for open source" stuff Red Hat's CEO apparently said in March--see www.ebizq.net/blogs/op...).

The argument for the "Red Hat won" scenario is a FAQ sheet that accompanied the press release which said "More generally, the settlement demonstrates Red Hat’s commitment to standing up for the community against patent aggressors. We believe it will serve as a precedent that should discourage future similar cases."

The plaintiffs don't look like patent agressors to me and the precedent that Red Hat is talking about is not a legal precedent as it implies but simply the idea that it is not just indemnifying itself but also those upstream and downstream in the development process.

Is Red Hat Opposing Document Standard to Prepare Ban on Windows?

Peter,

No--as noted elsewhere on SA multiple times--I don't think participation in the Open Standards movement is a good use of Microsoft shareholder value either.

My point is that I think Red Hat's participation is not the "for the common good" activity you think or hope that is. Red Hat seems to want governments to pass laws or issue edicts that favor one brand of software over another.

(I think you are adding patents to your objection for the first time, no? That's a separate discussion and it is ongoing here on SA on a different thread. But it has two forks: current patent portfolios and whether the U.S. will continue to grant them liberally in the future. The current SA discussion considers only the latter patent-issue fork)

- Dennis

Microsoft and Competitors Continue to Waste Resources on OOXML

Just to be clear (see my previous posts on this subject), I believe Microsoft is wasting resources on this issue as well. The headline implies I was only criticizing IBM, Sun and so forth.

-- Dennis Byron

Is Red Hat Opposing Document Standard to Prepare Ban on Windows?

In answer to Mr. Peter Green, thanks for your rational comment.

Just so you understand how seekingalpha works, I am an independent analyst/consultant that blogs on my own web site and at other sites with which I am affiliated. Seekingalpha picks up my posts when it wants and when it feels the content is germane to its readers. Please do not stop reading Seekingalpha because you do not agree with my opinion.

Since you say you agree with Mr. Penguin, the Linux devotee who commented before you, please understand that all my posts--the ones that SA picks up and those it chooses not to--are written from the perspective of the investor, primarily the institutional investor. My blog post says nothing pro or con about any particular standard but simply asks the question: Why is a publicly traded U.S. company with very specific legal governance obligations to the shareholder, wasting its time and the shareholders' money on an issue related to an IT market (document processing software) in which it does not even compete? A rational investor can only conclude that Red Hat wants to further an agenda that will in fact help it in a market in which it does compete at some point in the future.

(Therefore, I have no idea if Thomas'/Red Hat's 10 points are correct nor do I care. I do know that at least one of them is misleading. It is correct to say that Microsoft has itself not implemented the standard in question. But that is because the ECMA has changed the standard in the last two years based on input from something like 87 national ISO standards bodies. Microsoft cannot implement the standard until ECMA finishes the standards process. Red Hat's press statement, which I reference at the beginning of my blog post, includes similar red herrings.)

At this point, the investors in Red Hat (RHAT) are ill served by trying to get governments around the world to "legislate" (or even worse-"edictize") the brands of IT products their citizens will pay for and use. Despite Mr. Whitehurst's postion as reported in Infoworld on 3/27 that "George Bush is good for open source," it is an unbelievably short-sighted position. One American company that is very well respected in the open source community has already thought through the consequences of this position on its blog (see hyperic.com/blog/hyper.../).

How soon before governments will legislate against companies based on the geographic location of their headquarters? Or the religion of their owners. Or the color of their owners' skin? Red Hat is on a slippery slope and its investors need to understand that.

-- Dennis Byron

Red Hat, Oracle: Cross Currents in the Linux Market

I cannot judge the methodology of the Pacific Crest market research vis a vis Oracle doing better in the Linux market versus Red Hat and others than conventional wisdom (CW) suggests. But I am inclined to believe it. In 30 years of doing IT market research, many of them specifically tracking Oracle ERP and middleware products, I found very often that Oracle had a higher presence in a market than CW said.

Case in point, BEA and IBM executives consistently told me that they never saw Oracle in application-server sales situations in the early years of this decade. But Oracle publicly stated (subject to time in the SOX pen if it were false) that it was growing its application-server business dramatically both in terms of revenue and unit sales. I believe both sides were telling me the truth (or as close to the truth as you get from marketing folks). The disconnect occurs because the large and largely satisfied Oracle database installed base is installing other Oracle products without even talking to a second source. This phenomenon is very likely happening with Oracle Linux as well.