Why Should Red Hat Be Allowed To Rewrite Wall Street’s Rules?

This election season’s flock of presidential hopefuls could learn a lot by watching how CEOs of high-tech companies spin bad news into sunshine.

The latest virtuoso performance came earlier this week, when Red Hat president and CEO Matthew Szulik commented on his company’s unexpectedly wide loss of $3.5 million (US$) in its third quarter.

According to Szulik, “An increase in global demand for Red Hat Linux, an increase in the need for services from corporate accounts, an increase in the contribution of Red Hat’s global offices, and an increase in the demand for the content and customers of Redhat.com” were contributing factors.

“Red Hat continues to scale its global capabilities to meet the growing demand for Red Hat products, services and information,” he added.

What’s Missing?

Wait a minute. Where is the mention of Red Hat’s latest loss, which, by the way, was a penny worse than the four cents per share expected by the three security analysts surveyed by First Call/Thomson Financial?

Growing Revenues Plus Stock Split

Instead of focusing upon the fact that the recently-gone public Red Hat actually fell into the red after making a profit of $120,000 in the year-earlier third quarter, Szulik focused on the fact that its revenue increased 63 percent to $5.4 million.

Then, to cap it off, the Durham, North Carolina-based packager of Linux software declared a two-for-one stock split that will be distributed in the form of a stock dividend on December 27th.

Positive Spin Is What Counts

When a company misses earning estimates in the drab steel and concrete world, its stock usually takes a big nose-dive. But not in the cyberworld of high-tech and dot-coms. In case you hadn’t noticed, Red Hat shares shot up $15 to $267 on the Nasdaq Stock Market by Monday’s closing.

This latest spike means that Red Hat’s stock has risen almost 20-fold since its initial public offering in August. Additionally, as amazing as it may sound, Red Hat now has a market capitalization of almost $18 billion.

But that’s not all.

New Public Offering

Red Hat also disclosed that it is considering filing a registration statement with the Securities and Exchange Commission (SEC) for a new public offering of Red Hat stock. The statement could be filed as early as the week of January 3rd, the company said, while declining to comment on the timing or possible size of such an offering.

Rules Have Been Rewritten

Let’s face it, earnings, dividends and ratios do not matter anymore, because Wall Street’s rules are now being rewritten by companies that consistently lose money.

That is why CEOs of companies like Red Hat can keep blowing smoke while politicians — who are pretty good at spinning things — can only watch in awe.

What do you think? Let’s talk about it.