The inveterate Linux vendor and rising enterprise software star reported 45% higher earnings year over year on a 15% revenue increase, leaving analyst targets far behind. The Street-shocking performance was no fluke, but rested on strong demand for core products such as the JBoss middleware platform, and the Red Hat Enterprise Linux operating system.
And the healthy demand for these products is actually obscured by the GAAP sales figures. Many of Red Hat's largest sales come with multi-year contracts nowadays, pushing most of the actual revenue collection into future quarters and fiscal years. The billings proxy metric attempts to track the full value of current sales by adding deferred revenues to the plain old sales, and that line item jumped 19% higher.
Some of this quarter's success was built on a partnering foundation, alongside a chunk of Red Hat's growth prospects. Red Hat CEO Jim Whitehurst credited the OpenStack cloud-computing platform as a serious growth driver, only a few months after Red Hat's first release into the OpenStack ecosystem. The platform was created by cloud-computing specialist Rackspace Hosting (NYSE:RAX), inviting a truckload of partners to exploit and improve the basic concept.
Rackspace investors are worried about that company's ability to monetize overall OpenStack adoption, and shares are down 50% over the last year. Rackspace shares did jump 2.7% higher on Red Hat's report, which showed that there's plenty of money-making muscle behind OpenStack's cloud management and orchestration tools, but Rackspace investors, like yours truly, are still looking at big losses in 2013.
Red Hat reported modest revenue growth three months ago, giving investors a quick investing window south of $47 per share. But the billings proxy always looked strong, and Red Hat is executing on its plan to steal market share from the largest IT shops.
The strategy is paying off. If you bought Red Hat shares after the October crash, you're already looking at a swift 24% gain. I'm not surprised to see the stock scoring -- a 550% return in the last five years -- and I'm pretty sure the best is yet to come. If nothing else, you should definitely keep Red Hat on your Foolish watchlist so you can keep up with news on the company.