Salon rockets on Red Hat deal
The Internet publisher's shares get a shot in the arm, soaring as much as 90 percent after it announces it will be featured on Red Hat's Web site.
Salon.com shares jumped as much as 90 percent today after the Net publisher announced it will be featured on Red Hat's Web site, making it the latest company to see its shares jump dramatically at the mere mention of an affiliation with a Linux-related company
Under the deal, Salon will be a premier partner on Red Hat's recently launched news site, Wide Open News. Red Hat develops and distributes the Linux operating system, which competes with Microsoft's Windows and is gaining in popularity.
The companies offered no details about the number of visitors Red Hat's Web site receives or how Salon will benefit from the deal. Salon's revenues come from advertising on its Web sites.
A Salon representative could not immediately be reached for comment.
The lack of details didn't deter investors from buying Salon shares, which rose 2.75, or 52 percent, to 7.94. The shares reached 10 at one point during the day.
Although the deal helped ignite Salon's stock, the shares are still below the company's initial public offering price of $10.50 last June.
One analyst said it is too early to determine the volume of traffic that will be generated, and investors may have put too much importance on today's announcement.
"The Red Hat deal was less important than the Rainbow Media deal, but Red Hat is hot and sizzly," said Carolyn Trabuco, an analyst with First Union. "But from a pure fundamental standpoint, the Rainbow Media (deal) will have greater impact on the company."
Last month, Salon signed a 10-year agreement with Rainbow Media Holdings, a Cablevision Systems subsidiary, to develop a TV series for arts and entertainment channel Bravo. Salon gave Rainbow a 10 percent stake in the company in exchange for $11.8 million of advertising and promotional time on Rainbow shows.
When the Rainbow deal was announced, Salon's stock briefly spiked as high as it did today, Trabuco said.
She added that while the Red Hat deal will generate some traffic, it will likely pale compared with the traffic the company receives via other sources, such as America Online.
Trabuco noted, however, that the Red Hat partnership will bring Salon some exposure, which it could leverage into other content-distribution deals.
Red Hat was one of the best IPO gainers in 1999, as interest in Linux-related companies has soared. Red Hat gained threefold on its first trading day alone.
Linux, a Unix-like operating system, was developed by Linus Torvalds and several other programmers. The open-source software has made its way into some of the world's biggest computing companies, with some industry watchers predicting it represents a direct threat to Microsoft's presence in the OS market.
Other companies have seen their shares rise after announcing an affiliation with a Linux company.
Network security provider V-One jumped 279 percent in November after announcing its software would be compatible with Red Hat's 6.0 version OS. Shares in educational software maker Learn2.com rose 64 percent last month after stating it would sell Linux tutorials.
The day after V-One announced its Linux tie, the shares gave back about half the gains. Learn2.com shares also have slipped since the December gains.