Earnings Reports

Google Ad

Open source Linux software provider Red Hat who recently agreed to be acquired by IBM reported earnings after the close Monday, beating on earnings but missing on revenue. $RHT new products OpenShift and OpenStack have been ramping up revenue from hybrid cloud computing.

RedHat Cloud

Red Hat Inc NYSE: RHT Report Earnings After Close Monday

 $0.96 Beat $0.87 EPS Forecast But $847 Misses $853.6 million forecast in revenue. 

Red Hat Earnings Beat Consensus Estimates, Miss on Revenue

Red Hat  adjusted earnings rose 32% to $0.96 per share above analysts’ forecasts. Reported profit was $94 million or $0.51 per share, compared to $102 million or $0.55 per share in the third quarter of 2017.  RHT was expected to report earnings of $0.87 per share for the November quarter when revenues are predicted to grow 14% year-on-year to $853.6 million however revenues were lower up 13% annually to $847 million, helped by a 13% growth in subscription revenues. Deferred revenue balance at the end of the quarter was $2.5 billion, up 20% compared to last year.

In the second quarter, a sharp increase in operating costs ate into earnings where excluding one-time expenses, earnings grew 11% to $0.85 per share with 14% revenue growth.

Red Hat this week bought Boston-based tech firm NooBaa for an undisclosed amount.  RHTy has been focusing on hybrid cloud architecture and cloud-enabling technologies.

Red Hat Inc NYSE: RHT

Market Reaction After hours $176.59 USD +0.59 (0.34%) 

RHT Q3 2018 earnings

IBM Takeover

In October, Red Hat agreed to be acquired by International Business Machines (IBM) for $34 billion, in one of the biggest deals in the tech sector in recent times. Shareholders of Red Hat will be voting on the acquisition at a special meeting to be held next month. Owing to the pending buyout deal, the management did not provide its guidance for fiscal 2019.

Red Hat Three Core Business Segments

  • Infrastructure business

Red Hat derives two-thirds of it's revenues from it's infrastructure core. This segment continues to grow, up 15% last quarter. The free cash flow from this segment has grown 14 out of the past 15 years, the only fall during the GFC in 2008. This consistency from it's subscription business model demonstrates a highly stable basis where margins are defensible.

  • Training & Consulting 

This segment has taken off with Red Hat's growth stategy, growing 27% last quarter. Red Hat has a strong partner base that includes IBM, Intel, Dell Technologies, Google cloud platform, Microsoft Azure and Amazon Web Services (“AWS”) to drive growth. The company’s collaborations with cloud providers like Amazon, Google and Alibaba positions it for significant top-line growth. This is helping Red Hat to cross-sell cloud-based technology across its customer base.

  • Apps and Emerging Technology 

The segment that excites many analysts is apps and emerging technology which surged over 40% last quarter. Morgan Stanley in a note  is looking for "Acceleration of growth in the emerging business segment aided by growing demand for the OpenShift and OpenStack platforms. Rising margins that push cash flow growth above the 20-percent mark." 

Stifel says that Red Hat's Q4 report should confirm the company still manages to "elevate its strategic positioning" and can sustain a low-to-mid-teens growth rate, 30-percent emerging product growth and billings growth in the mid-teens.. 

Aquisition Strategy

Complementary acquisitions have led to a favorable product mix which is boosting overall results. Red Hat has made the following complementary acquisitions; 3scale, Ansible, FeedHenry, eNovance, Inktank and Codenvy.

This has enabled an expanded product portfolio into higher-growth segments, such as Hybrid cloud and other emerging technologies including Cloud Management, OpenShift, OpenStack, and Storage.

During Q4 Red Hat acquired CoreOS, an innovator and leader in Kubernetes and container-native solutions, for $250 million. 

Source: Red Hat, Stifel

Live From The Pit

Log in to comment
Discuss this article in the forums (0 replies).