Why Red Hat Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Red Hat  (NYSE: RHT  ) jumped nearly 15% Friday after the company posted better-than-expected earnings results and forward guidance.

So what: Quarterly revenue rose 15% year over year to $397 million, including a 17% gain in subscription revenue to $343 million. This translated to non-generally accepted accounting principles net income of $81 million, or a 45% increase to $0.42 per diluted share. Analysts expected adjusted earnings of just $0.35 per share on sales of $383.13 million.

Better yet, Red Hat also increased its full-year fiscal 2014 guidance, calling for revenue in the range of $1.531 billion-$1.534 billion, with non-GAAP earnings per share of $1.46-$1.48. Analysts, on average, were modeling full-year fiscal 2014 earnings of $1.38 per share on sales of $1.52 billion.

Now what: I think investors are right to be excited considering this was a solid quarter built largely on the strength of Red Hat's core Enterprise Linux and JBoss Middleware offerings. As a result, and even with shares trading at a lofty 35 times next year's estimated earnings, it looks like Red Hat stock could still prove to be a bargain for patient long-term investors.

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