Red Hat Revenue Grew By 32 Per Cent

Thursday, July 17, 2008

Despite fears of recession the company earned $156.6 million in revenue in the first quarter of fiscal year 2009, which started in March 2008. The revenue reflected a 32 per cent growth, year-on-year. The subscription revenue was $130.7 million, up 27 per cent.
The company launched major releases including Red Hat Enterprise Linux 5.2, Red Hat Satellite 5.1, JBoss Operations Network 2.0, and launched Fedora 9 to the open source community. It was also named the #1 IT vendor in Japan for the second consecutive year. Its JBoss Enterprise Application Platform named a leader in Gartner’s Enterprise Application Server Magic Quadrant for third consecutive year . The company also saw a strong momentum in JBoss in the quarter, over 20 per cent of its top 30 deals this quarter included a JBoss component

According to Red Hat press statement, “There were two downgrades based on relative valuation, but these analysts remain positive on RHT and want to see further earnings expansion to increase their price targets and ratings. A number of investors and analysts said that they would have liked to see higher billings growth in the quarter, but they noted that the additional color on the solid bookings that was discussed on the call was very helpful. Overall, Red Hat’s earnings were solid, especially considering the current challenges of the economy.”

Commenting on the earning reports the analysts had mixed reviews about Red Hat's growth. Merrill Lynch said, “RHT remains a cash flow story, especially if the JBoss and Red Hat Enterprise Linux 5 momentum continue. Red Hat has the potential to scale into a highly profitable $1-2bn revenue company by capitalizing on a shift in the server market towards Linux subs from UNIX, especially in BRIC (Brazil, Russia, India, China).”

While Oppenheimer & Co., Inc downgraded Red Hat from Outperform to Perform it did state the following, “To be clear, we are not downgrading RHT due to concerns about its operational performance, as we continue to think the company is well positioned to grow 25 per cent+ for the foreseeable future as it expands both its sales and product footprint and JBoss begins to generate consistent traction.”

Pacific Crest said, “Red Hat is posting consistent results and consistently growing 20%-plus and driving towards 30%-plus. As open-source software continues to gain acceptance, Red Hat should continue to be a major beneficiary.”

Although Thomas Weisel Partners downgraded Red Hat from Overweight to Market Weight, it did say the following, “All else being equal, we will look for an acceleration in open source adoption and deployments (including Linux, JBoss, MetaMatrix, and GFS) as companies seek higher ROIs in a weakening economy or a sudden improvement in renewal rates as catalyst to revisit our rating.”

Piper Jaffray said, “Non-operational impact from lower interest rates creates slightly adverse optics for FY09 EPS guidance. However, favorable commentary on pipeline and bookings growth, plus a 36% y/y increase in deferred revenue, set the stage for ongoing multi-year growth of 20-25%+ due to RHT’s unique open source value proposition.

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