Red Hat Inc. perhaps thought it was playing Santa Claus this afternoon with fiscal third-quarter profit and revenue that eclipsed Wall Street expectations.

But investors were apparently in a Scrooge-like mood, bidding the open-source software company’s shares down nearly 4 percent in after-hours trading. It wasn’t clear why they weren’t satisfied, but many investors have been expecting a lot of tech companies, sometimes punishing them for outlooks that aren’t quite as rosy as they hope.

Earnings of 73 cents per share beat consensus estimates and earlier Red Hat guidance of 70 cents. Revenue rose more than 21 percent to nearly $748 million, about $13 million better than estimates. The company also upped its fourth-quarter guidance to a profit of 81 cents against analysts’ estimates of 75 cents and said margins will improve over the current quarter. The company said it’s on pace to finish its fiscal year with an annualized revenue run-rate of $3 billion and a slot on the Fortune 1000 list.

“I’m more bullish than I’ve ever been about our long-term prospects right now,” said Chief Executive Jim Whitehurst (pictured).

Analyst Charles King of Pund-IT Inc. said the stock selloff shouldn’t detract from an otherwise outstanding quarter. “Post-close sales were likely driven by factor like profit-taking to possible nervousness about upcoming quarters,” he said, “but by any measure, the price drop wasn’t extreme and shareholders should be pleased by Red Hat’s more-than-solid performance.”

Open-source dividend

Red Hat continues to gain traction with large enterprises that are buying into open-source for both on-premises infrastructure and cloud migration. Its top 25 largest deals that were up for renewal re-signed at an average increase of 20 percent over their previous contracts. The company booked 94 deals of more than $1 million in the quarter, up 30 percent over the same period last year. Four of those deals were greater than $10 million and one topped $20 million. “Results exceeded expectations across all categories,” Whitehurst said. Operating cash flow grew along with deferred revenues, strengthening the company’s momentum going into the fiscal fourth quarter.

Red Hat said its services revenue is particularly strong, driven by a surge in corporate interest in Ansible, an open source information technology automation tool. Ansible “has come into organizations and exploded,” Whitehurst said, adding that 17 of the company’s top 18 deals in the quarter had an Ansible component.

Services contracts are often Red Hat’s foot in the door to sell more of its platforms as well as application development suites. “Services is a leading indicator,” said Chief Financial Officer Eric Shander. “A lot of what we’re seeing is early proof-of-concept projects on the services side, which leads to a pickup in deployment of emerging technology.”

Containers have been another big driver of new business as embodied in Red Hat’s OpenShift, a platform-as-a-service offering that combines the popular Kubernetes orchestration platform and Docker containers for running applications easily in different computer environments. Red Hat has been betting heavily on OpenShift through a recent partnership with cloud giant Amazon Web Services Inc. and beefed-up storage capabilities and application runtime platforms for its on-premises products.

Enterprises are overwhelmingly moving to application development to containers, which is driving both infrastructure and application development-related business, Whitehurst said. “Virtually every large company we’re working with is building its strategy on containers, with an expectation that nearly all new applications in the future will be containerized,” he said. “They want a vendor they feel confident can support and patch those components in the container, and people trust Red Hat.”

The surging popularity of Kubernetes is pulling in other project business as well. “When people are deploying new infrastructure on OpenShift, we also see a lot of traction in new deployments of OpenStack,” the CEO said.

That combination drove a 44 increase increase in Red Hat subscription revenues from application development-related products, compared with 15 percent growth for infrastructure-related projects. Red Hat derives 88 percent of its revenues from subscriptions.

Image: theCUBE