UPDATED 16:53 EST / SEPTEMBER 25 2017

CLOUD

Red Hat shares rise as it beats and raises its earnings forecasts again

Red Hat Inc., best-known for its long-running Linux operating software for corporate data centers and a bellwether for open-source software companies, just keeps on rolling.

The company today reported a second-fiscal quarter profit of $96.9 million, or 53 cents a share, way above the $58.8 million, or 32 cents a share, it earned a year ago. After adjusting for stock compensation and other expenses, the profit was 77 cents a share. Revenue rose 21 percent, to $723.4 million, from $599.8 million a year ago.

Both measures easily beat analysts’ estimates of a 67-cent profit on $699.6 million in revenue. The company again raised estimates for the next quarter, to a 70-cent profit on revenue of $730 million to $737 million. Analysts had reckoned 70 cents a share on revenue of $710.5 million.

Red Hat Chief Executive Jim Whitehurst (pictured) said hybrid computing, in which companies need to do computing both in their own data centers and in public clouds, was a big driver for the quarter. In particular, he added on the conference call, on-demand revenue from its Red Hat Enterprise Linux service, or RHEL provided through cloud provider partners is now growing twice as fast as the company overall, or about 40 percent, reaching a $200 million annual run rate.

“All enterprises are recognizing that we’re going to be living in a hybrid environment certainly in our lifetime,” Whitehurst said in an interview with SiliconANGLE. “That’s a place where we’re very well-positioned.”

Subscription revenue from infrastructure-related offerings, a key metric because it’s steadier than selling software licenses, hit 88 percent of total revenue, rising 20 percent, to $638 million.

Moreover, subscription revenue from infrastructure-related offerings in particular rose 14 percent, to $487 million. Subscription revenue from Application Development-related and other emerging technologies drove a lot of the upside, rising 44 percent, to $150 million. Services revenue also grew 25 percent from a year ago. “It was a great performance overall,” Chief Financial Officer Eric Shander crowed on the call.

Investors liked what they saw, sending shares up more than 4 percent in after-hours trading. Update: Shares rose 4 percent on the day Tuesday. The results mark a continued recovery from a rough patch three quarters ago that saw the delay of some big deals, the departure of the chief financial officer and a share price that fell 13 percent in a day, to $69 a share. Since then, shares have bounced back, to $105.73 a share, down a fraction in regular trading today.

For the full year, Red Hat is forecasting revenue in a narrow range between $2.88 billion and $2.895 billion. It’s predicting adjusted earnings per share of $2.77 to $2.79 per share, assuming 180 million fully diluted shares outstanding. And operating cash flow is expected to be about $880 million to $900 million.

Earlier today, Microsoft Corp. said at its Ignite conference that it will port its Windows Server software containers and SQL Server 2017 database management system to Red Hat Inc. Linux-based platforms. RHEL will be a reference platform for SQL Server. Before that, Microsoft had made RHEL available on its Azure public cloud and Red Hat had added support for Windows Server Containers to its OpenShift container management platform.

Overall, Whitehurst said, Red Hat is moving from a traditional role as a commoditizer of computing with its cheaper Linux operating software to contributing to and shepherding more of the recent innovation in open-source, such as software containers and the container orchestration software Kubernetes. “We have a seat at the table at much more senior-level discussions on business performance and digital transformation,” he said. “That’s the fundamental thing that’s driving growth in our business.”

Whitehurst also spoke with SiliconANGLE Media’s video unit theCUBE in May at the OpenStack Summit in Boston:

Photo: SiliconANGLE

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