Red Hat Outlook Disappoints

Recently Linux provider Red Hat (NYSE: RHT) reported its first-quarter results. While the quarter’s performance outpaced market expectations, its outlook was disappointing, sending its stock crashing. Since the results, the company’s stock has fallen nearly 12%.

Red Hat’s Financials

Red Hat saw Q1 revenues grow 20% over the year to $814 million, against the market’s forecast of $807 million. On a constant currency basis, revenues grew 17% over the year to $791 million. EPS of $0.72 was also better than the Street’s expected $0.68 for the quarter.

By segment, Subscription revenues grew 19% to $712 million. Within the segment, infrastructure subscription revenues grew 14% to $522 million, and revenue from tools for writing applications rose 37% to $189 million. Training and other services revenues grew 27% to $102 million.

For the current quarter, the company forecast revenues of $822-$830 million with an EPS of $0.81. The market was looking for revenues of $855 million with an EPS of $0.89. Red Hat expects to end the current year with revenues of $3.375-$3.41 billion, reducing its outlook from the earlier forecast of $3.425-$3.46 billion. It expects to end the year with an EPS of $3.44-$3.48, better than the earlier outlook of $3.38-$3.41. The market was looking for revenues of $3.4 billion with an EPS of $3.47.

The market was not pleased with Red Hat’s outlook. But the company was unfazed and it wants investors to look “long-term”. Red Hat defended the miss to a strong previous year that makes it a tough year for comparison.

Red Hat’s Container Growth

Red Hat is driving growth through focus on its cloud offerings including OpenShift – the container application platform. As part of this initiative, it has expanded its tie-up with cloud providers including AWS, Microsoft Azure, and IBM.

Its alliance with AWS will allow it to integrate AWS services within OpenShift Container Platform for hybrid users. The expansion of the alliance with Microsoft will enable enterprise developers to run container-based applications across both Microsoft Azure and on-premise environments. As part of the alliance, Red Hat will introduce OpenShift offering in the public cloud to make it easier for organizations to manage containers. Red Hat OpenShift will also allow enterprise developers to get the benefit of hybrid clouds by moving applications between both on-premise environments and Azure using OpenShift.

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