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MandrakeSoft looks at Red Hat's cash and says "we need more of that" |
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Wednesday June 05, 2002 - [ 02:52 PM GMT ]
Topic - Business -
- by Tina Gasperson -
It's not a huge surprise that Paris-based Linux distributor MandrakeSoft is selling stock to raise money.
The company has displayed a fair amount of creativity in recent attempts to fill the
company coffers; the Mandrake Linux Users Club and the Corporate Club are both
subscription-based options that provide perks for a monthly fee. Mandrake isn't
saying one way or the other whether these offerings have been successful
fundraisers, but an announcement Tuesday said that "despite a difficult
economic climate" Mandrake has achieved a "solid increase in revenues."
Mandrake needs to break even before the end of the year; back in May 2001 there was
talk
of getting out of the red in a "few months." In its February 2002 shareholder newsletter, it was "confident that it will reach its
break even point by the last quarter of 2001/2002," through greater income and a
bigger profit margin. Now, heading into the last quarter of Mandrake's fiscal
year, the push is on to fulfill the "break even promise." Even KBC Securities, a
French financial analysis company, predicted a near profit for Mandrake by
September 2002.
So the company is raising money through a stock sale that is only available to Mandrake Club members. Current stockholders have offered to freely give their warrants to allow Mandrake Club members to purchase stock easily. Warrants are pieces of paper that give a potential shareholder the right to purchase a predetermined number of shares at a set price, similar to a stock option, except that with warrants, new shares are created, and with options, you get existing shares.
The April shareholder newsletter doesn't mention the extent of Mandrake's
gains or losses, or progress toward the goal of profitability. The fact that the
company doesn't participate in a regulated stock market means the requirements
for financial reporting are much less stringent; if you don't want to talk about
how much money you lost, you don't have to. Instead the report focused on an
increase in sales generated by online product sales and OEM sales, particularly
through Hewlett-Packard, and by Mandrake Club memberships. There's a brief
mention about a drop in sales caused by a slowdown in American distribution
channels, namely MacMillan, which the KBC Securities report touted as one of
Mandrake's biggest sources of income, along with French retailers, calling it
the "lion's share" of revenue. There's also a hint about the stock sale: "In
order to continue its development and increase its market share, MandrakeSoft
plans a capital increase, with the aim to further strengthen its financial
structure."
But along with the stock announcement, Mandrake posted a better breakdown of
its financial situation, showing its current loss at 3.67 million Euros, an
improvement over the previous quarter's loss of 6.05 million Euros. Even though
it may be tough to bring the company to a break-even point by September, if the
current trend continues, it is possible, especially if Mandrake is successful
with this stock offering.
Digging a little deeper, an interesting read is found in the FAQ about this
stock offering. Mandrake compares its value with Red Hat by extracting some
market cap information and manipulating it a bit. For instance, Mandrake has
determined that Red Hat's revenue trend is down over the last six months, yet
Mandrake's revenue trend is up. Plus, Mandrake calculated the ratio of its revenue
to the market cap, and found that Red Hat's cash is a good buffer for that company,
increasing its revenue/market cap ratio to 9.3 (with cash) from 6.1 (without
cash). Mandrake's ratio is 8.2, without the cash buffer Red Hat has, so the
company feels it is in a good position to remain viable, especially if the stock
offering brings in the green.
Mandrake goes on to list its strengths compared to Red Hat:
MandrakeSoft's revenue is growing while Red Hat's revenue is going down.
MandrakeSoft has an important position in the market due to the size of its user base which has not yet been fully utilized for revenue
purposes compared to Red Hat's user base.
MandrakeSoft generates only 9% of its revenue from services while Red Hat's revenue is generated 80% from services, so
MandrakeSoft's future growth potential is much greater. Also, MandrakeSoft has interesting sources of revenue such as the
Corporate Club and the User Club which provide highly sustainable and recurrent revenue sources.
MandrakeSoft has an outstanding reputation as a dedicated Open Source company that provides IT solutions that follow, as much
as possible, public standards and protocols.
And recognizing Red Hat's advantages, Mandrake points out:
Red Hat is listed on an established market (Nasdaq) while MandrakeSoft is on a small market (Marché Libre and OTC U.S. market).
Red Hat is an established leader and has strong partnerships with major players.
MandrakeSoft's loss/income ratio is higher than Red Hat's. For MandrakeSoft 13.6ME/3.6ME=3.7 last fiscal year (Oct. 2000-Sept.
2001), or 3.7/2.3ME=1.6 first semester (Oct. 2001-March 2002), while Red Hat's fiscal year gives $129M/$78.9M=1.6 (March
2001-Feb. 2002), which includes probable deprecation of acquisitions.
MandrakeSoft does not have the cash of Red Hat -- and cash is life insurance.
That last statement could be a telling one.
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Don't count them out yet (#14902)
by Anonymous Reader on 2002.06.05 12:36
Mandrake has been quite creative both technically and from a business stand point. Their club membership and selling ownership to loyal costumers is an excellent idea. They are small but they do have a large loyal base of users. Go to a local LUG and ask how many use it. At our local university LUG the numbers are about 60% Mandrake, 25% RedHat & 10% Suse. With a few Debian and Slackware users taking up the rest. Unfortunately, alot of those are from downloads and vendors such as cheapbytes.com. Mandrake is a french company, if their government were to look at how much money their sending over to Redmond and do something about it. Mandrake would have alot more stable income base.
[ Reply to This | Parent
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how about products (#14904)
by Anonymous Reader on 2002.06.05 13:23
Business comparison looks good. But can anyone compare their products? Why Mandrake would be better than RedHat on corporate desktops? On home computers? On workgroup servers?
Coming back to business comparison, for the most of IT decision makers the risk of "product investment" is one of the most important factors. Especially when it comes to products of non-profitable companies. I can spend money on RedHat and I know that it's a low chance that Redhat is out of business and thus I would have to change my Linux installation base to a product line of another Linux vendor. Can I say the same about Mandrake?
[ Reply to This | Parent
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Mandrake's Potential (#14927)
by slicker on 2002.06.05 16:21 | User Info |
Mandrake has a lot of untapped potential--but I don't see them as being likely to tap into it. The Mandrake business mindset isn't exactly brilliant, in my view
Red Hat's 80% revenue from services is a good thing. This enables Red Hat to build a more stable distrobution and receive more residual income. I am referring to stability in terms of less frequent updates negatively effecting ISVs (Independent Software Vendors) and IT migration planners. Red Hat's services income perked up mostly when they acquired Cygnus Solutions who writes only GPL-licenses software, mass distributes it getting business users hooked on the products and then making modifications for fees. This is the only form of "service" revenue that seems to universally work as a business model for Open Source-based companies. It provides a strong residual income that is highly likely to continue for many years with each customer acquired.
In contrast, Mandrake makes only 9% from services. Their main source of revenue is from CD sales that depends, primarilly, on the hard to balance duality of rapid CD releases along with significant and visible improvements. Buyers of mandrake Linux are far more likely to be those who like to tinker than are Red Hat customers. Mandrake addresses their needs/wants very well but, as a consequence, addresses business customers very poorly.
I would see excellent potential for Mandrake if they were to offer a stable edition with an annual release cycle to build their services division around. In many senses, this is a different kind of business and a much more stable one, although it would take time to get established. The rapid CD sales method of making money can play a synergistic role together with a stable edition and the stable edition would reduce the volatility caused by the rapid CD sales method. The rapid release editions could act as testing grounds for Mandrake's stable release just as it does for the typical customers who buy their distrobution.
Matthew
[ Reply to This | Parent
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Hum... (#14936)
by Anonymous Reader on 2002.06.05 17:58
I think the article about the MandrakeSoft offering is a bit badly-oriented. The reason why MandrakeSoft didn't publish its April results is very simple: they have to publish their results every quarter! So they published Q1 (for them it starts 1st october), Q2 and after June they will publish Q3 results.
Actually it seems that the evolution of their revenues and loss goes in the good way... Their incomes increase, their losses decrease, and all this in an awful economic environment....
Furthermore I think their business model, in particular the Mandrake Club and MandrakeStore approaches, is extremely intelligent and is one the best approach in the Free-Software world.
It's extremely impressing to see how a small outsider that appeared three years ago, without any money, can now represent more users than the total of SuSE + Caldera + Turbo Linux users (and so potentially more _business_ as well!), and be a challenger for Red Hat. I can see no other reason for that that an intelligent community-oriented approach and... good products.
One year ago, they also started to release very convenient products & services for business (such as their Single Network Firewall & the Mandrake Prosuite, and different support and consulting offers), and their adoption in the enterprises seems to go faster than ever (just have a look a the hundreds of business cases on http://www.mandrakebizcases.com [mandrakebizcases.com]).
As a result, I'm going to subscribe the warrant offer & buy shares because I can see a lot of potential & creativity in this small company.
By the way, by reading http://www.mandrakesoft.com/company/investors/bsa? wslang=en [mandrakesoft.com], it seems that everybody can subscribe the offer, without even being a Club Member (with less priority I guess!). Did anybody try here?
[ Reply to This | Parent
]Re:Hum...
by Anonymous Reader
2002.06.06 0:18
Re:Hum...
by Anonymous Reader
2002.06.06 3:23
Re:Hum...
by Anonymous Reader
2002.06.06 3:42
SUSE is s o much better. (#14940)
by Anonymous Reader on 2002.06.05 18:43
Everything about them except the community is better IMO. Their desktop distro is better, and their enterprise solutions are much much ebtter. They also started the UnitedLinux initiative. BTW check out this article about them to clear up roumors:
http://www.pclinuxonline.com/modules.php?name=News &file=article&sid=2287
[ Reply to This | Parent
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mr. troll here: (#15056)
by Anonymous Reader on 2002.06.06 16:52
I see no reason why money is necessary to succeed in the free software marketplace.
[ Reply to This | Parent
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