Re: [UUG/MLUG] VA Linux Hits New IPO Record Amid Linux Euphoria

[Jonathan King <EMAIL:PROTECTED>]

On Fri, 10 Dec 1999, Mike Miller wrote:

> On Fri, 10 Dec 1999, Christopher J. Kaiser wrote:
> 
> > You might want to look at today's nytimes article 
> > http://www.nytimes.com/library/tech/99/12/biztech/articles/10linux.html
> > 
> > It's a lot less glowing.
> 
> It sure is!  Thanks for passing that on.  I don't know why my search of
> the N.Y. Times didn't turn up their own article.
> 
> I liked this paragraph:
> 
> 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."
> 
> It's amazing to me that such a statement would be a prelude to a massive
> increase in stock value.

Indeed.  But there are three things to keep in mind here.

1) Companies are going the IPO route much earlier in their development
   cycle these days than they used to, so direct comparisons with previous
   IPOs are a bit trickier.  A small number of these companies will do
   really well, even after you consider point (2) below, while the rest go
   bust.  The overall returns from these IPOs (at either the IPO or post-
   crash price will probably be pretty good in the long term, although
   the risk associated with any one of them will be literally astronomical.

2) We are obviously perched on top of a massive stock market bubble.  When
   it pops, things are going to very, very messy for quite a while.  These
   run-ups are unsustainable, pure and simple.  But the financial bubble
   doesn't mean that the underlying companies can't turn a profit now or
   at some point.  Yahoo!, to take one examples, now has actual earnings,
   despite predictions that this would never happen.  Now, it's ludicrous
   to think that it's a $91 billion company, but if it was "corrected"
   down to merely a $1 billion firm, would they necessarily generate less
   revenue?  (Actually probably more, since their future competitors would
   be far less likely to get financing and capital.)  And, as a $1 billion
   company, they're still a spectacular success.

3) A prospectus is *supposed* to scare the beejeezus out of you.  It's
   supposed to mention literally everything that could possibly go wrong
   that you are aware of, and then make you speculate about stuff that
   you aren't aware of.  And then you make up the part about space aliens
   enslaving man kind and stealing all your capital.  The whole point of
   this is to prevent the kind of absurd speculation we're seeing right
   now.  Guess it isn't working. :-(

jking