Open source software vendor Red Hat (RHT, Financial) reported its financial results for the first quarter that topped the analyst estimates on both the top and bottom lines. Its results were mainly driven by strong demand for its subscription and billings business that grew 18% and 17% respectively for the quarter.
The company benefitted from strong demand for its software utilized in the data centers, for cloud computing and to create virtual computers with in the operating system. In addition, its chief executive officer, Jim Whitehurst, said that the company is benefitting from an improved IT spending environment for open source, Linux operating system and cloud enabling technologies that should enhance its performance for the rest of the year.
Quarterly results and more
The Raleigh, North Carolina-based company posted revenue of $423.8 million, an increase of 17%, compared to $363 million in the corresponding period a year earlier. Its revenue for the quarter also topped forecasts of $414 million in revenue. Its non-GAAP net income for the quarter came in at $64 million, or earnings of $0.34 per share, compared to income of $62 million, or earnings of $0.32 per share, in the same quarter last year. Its earnings surpassed estimates of $0.33 earnings per share for the quarter.
Looking ahead, the company has raised its revenue guidance for the full year. It now expects revenue in the range of $1.76-1.78 billion. However, it has reduced adjusted profit forecasts for the full year to $1.52-$1.54 per share from $1.54-$1.56. The analysts on the other hand, forecast adjusted profit of $1.55 earnings per share on the revenue of $1.75 billion for the full year.
Red Hat is strategically investing in its sales capacity and enhancement for its growing portfolio of technologies. It is also investing in various growth drivers such as open hybrid cloud computing and big data. Red Hat additionally continues to make investments in its sales force in order to accelerate billings, bookings, and revenue. It has recently ramped up hiring of engineers for its cloud technologies. These investments coupled with strong expended technology portfolio should uplift its performance in the remaining quarters of the year.
In addition, the open source software vendor is experiencing strong demand for its Red Hat Linux, middleware, and cloud offerings that should certainly enhance its growth. The company has intelligently diversified its product portfolio of technologies. It is also seeing strong momentum in its renewals and cross-selling that should assist the company to own likely deals in the future. In fact, Red Hat during the first quarter managed to renew all of its top 25 deals, which reflects the strength of its portfolio of technologies. In addition, these customers are now buying multiple technologies from the company. A few of its customers have purchased 5 to 10 different technology offerings.
Red Hat has enhanced its relationship with SAP and its HANA in-memory database offering. This enhancement should enable Red Hat to offer its customers all of SAP deployments on Red Hat Enterprise Linux. The company has also released Red Hat Enterprise Linux for SAP HANA that should certainly uplifts its growth prospects in the long run. Moreover, its relationship with SAP will allow Red Hat to access the SAP portfolio of solutions effectively, coupled with access to ecosystems, system integrators, cloud providers, independent software vendors, and OEMs.
Conclusion
Red Hat is making smart moves to grow its business further. Investors should continue holding the stock for the long run.
