It appears that Red Hat Inc. is going out in style.

In what may be the company’s last earnings report as an independent entity, the open-source software vendor beat expectations on both revenue and earnings in its fiscal 2020 first quarter. Revenue rose nearly 15%, to $934.1 million, or about $2.5 million better than consensus estimates. Earnings of $1 per share beat estimates by 14 cents.

Reflecting the company’s ongoing efforts to diversify both its revenue source and type, Red Hat said subscription revenue related to application development tools and emerging technologies grew 29%, to $235 million, while training and services revenue rose 22%, to $119 million, both in constant currency. Sales of the company’s core infrastructure-related software grew 14%, to $580 million.

“Our large deal momentum remained strong, as we doubled the number of deals over $5 million and saw 15% growth in the number of deals over $1 million from the year-ago quarter,” Chief Financial Officer Eric Shander said in a prepared statement.

The company doesn’t break out revenues by product category, but Shander said new business in the quarter included one sale of more than $5 million for the OpenStack cloud computing platform and a storage and hyperconverged deal of more than $15 million. Operating cash flow grew 37% year-over-year, to $474 million, indicating core business strength.

It’s academic

The results were largely academic as far as the stock market is concerned, since Red Hat is due to be acquired by IBM Corp. for $34 billion in the second half of this year. Because of the pending sale, the company provided no earnings guidance and didn’t hold the customary conference call with analysts.

Red Hat shares inched up a quarter of a percent in after-hours trading, but the stock has stayed in a narrow trading range for more than three months. Reuters reported earlier today that the IBM deal is about to get a boost with unconditional approval by the European Union believed to be imminent.

The positive results should be a relief to executives at IBM, given that Red Hat’s performance has been a bit erratic over the past nine months. It fell short of analysts’ revenue estimates in both its 2019 fiscal fourth quarter and second quarter, bookending a better-than-expected third-quarter.

Analysts are more focused on how the company will contribute to IBM going forward, since Big Blue has said that Red Hat will anchor its multicloud strategy. Research firm Wikibon, a sister company of SiliconANGLE, believes that “Red Hat will prove to be a formidable asset in Big Blue’s efforts to dominate the hybrid and multicloud arena,” said analyst James Kobielus.

Although best known for its Red Hat Enterprise Linux offering, the company has had good success with its more recent diversification into other areas of cloud infrastructure, including the OpenShift container orchestration platform, Knative-based serverless computing and Istio-based mesh computing.

Red Hat’s recent announcement of OpenShift as a jointly managed enterprise-grade container orchestration service on Microsoft Corp.’s Azure “signifies Red Hat’s and IBM’s bona fide commitment to a truly platform-agnostic multicloud capability,” Kobielus said. A similar deal with virtualization giant VMware Inc. demonstrates a commitment to “sparing mutual customers from having to do a lot of custom integration work,” he said.

Charles King of Pund-IT concurred, noting that IBM was a leader in promoting open-source software over 20 years ago and remains agnostic about its support of various open source platforms. Red Hat’s “leadership as the solution of choice for enterprise Linux makes the company an ideal match for IBM,” King said. “Add to that the growing importance of open source in emerging workloads, modern applications and other sizable IT projects, and the acquisition of Red Hat makes enormous sense for IBM.”

Photo: Paul Gillin