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Hats Off To Red Hat

By Keki Fatakia - Updated Apr 7, 2017 at 8:26PM

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Red Hat posts higher third-quarter revenues and profits.

Red Hat (NYSE: RHT), a provider of open-source software for enterprise users, is continuing to pull out cash from its hat, beating expectations with its third-quarter results. Let's take a closer look at how the company has been performing of late.

Red-hot numbers
Red Hat delivered solid third-quarter revenue, which was up by 23% to $290 million due to robust license renewals. The company also benefited a lot on the operational front, as it saw operating margin expand further to 18.5% for the quarter. The company's earnings also rose at a better-than-anticipated rate of 47% to $38.2 million as its margins continued to improve.

Nevertheless, despite the good results and a credit rating thumbs-up by Standard & Poor's, a somewhat muted future outlook made investors cautious, resulting in an 8% to 9% dip in the company's share price on Dec. 20. The company indicated that the dollar's strength would affect next quarter's revenue by $4 million. However, this is not unique to Red Hat, as a strong dollar has its negative effects for all other companies in the U.S. that sell products and services overseas.

Spreading its wings
During the quarter, Red Hat also expanded its presence in the data center market with the acquisition of Gluster, an open-source software company. The company's software-based solution tackles the storage of unstructured data, including things like documents, audio files, video files, and the like.

Red Hat believes that the acquisition will help its entry into the fast-growing, $4-billion storage market. Companies such as Pandora and Limelight already use Gluster's technology.

The great thing about Gluster, which is already available on Amazon.com's cloud, is the fact that it is software-based and gives the user more flexibility and choice. Red Hat is also working on making Gluster available with other cloud offerings.

The Foolish bottom line
The going seems to be great so far for Red Hat. However, like many other companies, it is also somewhat susceptible to negative economic trends like unfavorable currency fluctuations. But given the company's solid growth trajectory along with a recent credit upgrade, I feel more confident about Red Hat's performance for the long run.

What do you think about Red Hat? Leave you comments in the box below. And don't forget to stay updated on Red Hat by adding it to your watchlist. Don't worry, its free and lets you stay on top of the latest news and analysis for your favorite companies.

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