Why Red Hat Is Surging After Earnings

By Chris Lange Updated Jan 12, 1:33PM EST · Published Mar 28, 8:55AM EDT

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Why Red Hat Is Surging After Earnings — © Thinkstock

[cnxvideo id=”655420″ placement=”ros”]When Red Hat Inc. (NYSE: RHT) reported its fourth-quarter financial results after the markets closed on Monday, the company said that it had $0.61 in earnings per share (EPS) and $628.8 million in revenue. Consensus estimates from Thomson Reuters had called for $0.61 in EPS and revenue of $618.76 million. In the same period of last year, the software company posted EPS of $0.52 and $543.5 million in revenue.

Total backlog in revenue for the 2017 fiscal year was in excess of $2.7 billion, up 28% from last year.

At the same time, subscription revenue for the quarter was $560 million, up 17% year over year, both in U.S. dollars and constant currency, making up about 89% of total revenue.

As a subset, subscription revenue from infrastructure-related offerings for the quarter was $435 million, an increase of 11% in U.S. dollars, versus and 12% measured in constant currency. Subscription revenue from application development-related and other emerging technologies offerings for the quarter was $125 million, an increase of 40% year-over-year both in U.S. dollars and measured in constant currency.

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In terms of outlook for the fiscal first quarter, Red Hat expects to see EPS in the range of $0.52 to $0.53 and revenues between $643 million and $650 million. The consensus estimates are $0.59 in EPS and $641.97 million in revenue.

Operating cash flow was $318 million for the fourth quarter. On the books, Red Hat cash and cash equivalents totaled $1.09 billion at the end of the quarter, up from $927.8 million at the end of the same period last year.

Eric Shander, acting chief financial officer of Red Hat, commented:

Our strategic position with customers is evidenced by the continued growth in large commitments to Red Hat. The number of deals greater than $1 million in fiscal 2017 grew by over 30% annually, and we closed a record number of deals over $20 million, including our first-ever deal of approximately $100 million in the fourth quarter. This performance also drove a record backlog of $2.7 billion in U.S. dollars, up 28% year-over-year which contributes to our fiscal year 2018 revenue outlook of 13% to 14% growth and should help drive expanded GAAP operating margin of 15.2% and non-GAAP operating margin of 23.6%.

Shares of Red Hat closed Monday at $82.20, with a consensus analyst price target of $87.16 and a 52-week trading range of $68.54 to $85.01. Following the release of the earnings report, the stock was up nearly 5% at $86.20 in early trading indications Tuesday.

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About the Author Chris Lange →

Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics.

Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications.

A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.