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Red Hat stock heads skyward on second day's trading

Company market cap nearly $5 billion

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Linux distributor Red Hat saw its market capitalisation soar from $3.48 billion to nearly $5 billion on the second day of trading in the newly-IPO'd company's stock. Red Hat shares began trading on Wednesday, and by close of play had more than tripled their value, rising from an initial price of $14 to just over $52. Yesterday, the increase continued and Red Hat's stock closed at $72.625. This despite the fact that for all Red Hat's soaring revenues it has still to turn in a profit. In the three months to 31 May it sales of just $2.8 million but lost $2.1 million. For that reason, one analyst, David Menlow of the IPO Financial Network, based in Millburn, New Jersey, said the rise of Red Hat's stock is "totally unsustainable". "These levels are nosebleed territory," he told Reuters, "and the stock does not belong at these levels." It's certainly going to be interesting to see how long the stock continues to rise -- or even, once it stabilises, how long that will last. In the run up to the IPO, most of the interest in the stock appeared to be coming from the Linux community itself. That interest could well push Red Hat's stock way up, but since many of these buyers are likely to be into the stock for the long term -- they're stating their support for Linux as much as making an investment -- that could well bring the stock down again as demand quickly slackens. Certainly, while Linux is making rapid inroads into the server market, and possibly soon the desktop PC arena, it's not going to push its distributors into serious profitability in the immediate future. And while companies like Red Hat will want expand into the rather more lucrative services business, they're quickly going to come up hard against some real tough rivals, such as IBM. ®

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