Red Hat vs Microsoft: The Big Stock Myth
A rather interesting — but somewhat misleading — blog entry has been floating across the Internet this week. The “news” notes that Red Hat shares are now trading above Microsoft’s stock price. Some pundits therefore think Red Hat is more valuable than Microsoft. Um, check your math. Nothing could be further from the truth. Here’s why.
First, a little background: The VAR Guy respects both Red Hat and Microsoft. But our resident blogger does, indeed, own a handful of Red Hat shares because the open source company seems to be on the rise.
That said, anyone who suggests Red Hat is more highly valued than Microsoft because of current share prices doesn’t know how to read a balance sheet. Sure, Red Hat’s stock has been trading at a higher dollar figure than Microsoft’s stock for much of this week.
Now, for the reality check:
- Red Hat is trying to march toward $1 billion in annual sales and the company’s market cap (shares outstanding X share price) is a respectable $5.17 billion. Not bad.
- Now let’s take a look at Microsoft. Annual sales at the software giant: $58.44 billion. And Microsoft’s market cap: $236 billion.
Ummm… Microsoft is roughly 60 times larger than Red Hat. Open source is a hot topic. But the king of software still lives in Redmond.