Red Hat's pockets bulging on strong Linux, JBoss sales

Enterprise Linux vendor Red Hat posted strong financial results for the third quarter of its fiscal 2014 on Thursday, with earnings that beat both analysts' estimates and the company's own earlier guidance.

Revenues for the quarter ending on November 30 were $397m, up 15 per cent from the same period a year ago.

In the customary conference call with financial analysts, Red Hat president and CEO Jim Whitehurst attributed the gains to strong demand both for the company's flagship Red Hat Enterprise Linux (RHEL) product and for its JBoss Middleware suite.

Of the total, $343m or 86.4 per cent of Red Hat's revenue this quarter came from subscriptions, which was up 17 per cent from the year-ago quarter.

Those healthy sales panned out in profits, with the company reporting net income of $52m, an increase of 48.6 per cent from Q3 of its fiscal 2013.

When adjusted for stock-based compensation and amortization, that meant earnings of $0.42 per diluted share, which not only beat the $0.29 per diluted share earnings of the year-ago quarter but also surprised the analysts, who were expecting results closer to $0.35 per share, according to Yahoo! Finance.

During the call, Whitehurst talked up Red Hat's investment in the OpenStack open-source cloud computing platform, which he said offers an alternative to proprietary software for customers who are transitioning their IT to hybrid cloud technologies. Red Hat plans to be "a big player" in OpenStack consulting, he said.

But although Whitehurst said Red Hat plans to continue to invest in OpenStack, he cautioned investors that it would take time for the company to build that part of its business, and that subscription revenues from OpenStack would be "modest" even in the fourth quarter.

Red Hat's overall revenues won't be, however, according to CFO Charlie Peters. During the earnings call, Peters said to expect the open source firm's fourth quarter revenues to match or exceed those of the third quarter, even given traditional seasonal declines.

All of this naturally came as music to the ears of Red Hat's investors, who sent the company's share price up more than 11 per cent in after-hours trading following Thursday's closing bell. ®