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 open-source software specialist Red Hat
So what: Driven by pent-up demand for cloud-centric datacenter updates, Red Hat reported an adjusted fourth-quarter profit of $0.26 per share, versus the average analyst estimate of $0.22 per share. Particularly impressive was the company's 30% growth in billings, its fastest increase in 12 quarters, which Mr. Market is naturally taking as a sign of more positive things to come.
Now what: I'd be cautious about riding today's momentum. While CEO Jim Whitehurst noted that Red Hat is on pace to "become the first pure-play open source company to achieve a billion dollars in revenues next fiscal year," the company still lacks the competitive edge to dependably produce outsized profits. With operating margins still half that of proprietary gorillas Microsoft
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