Please ensure Javascript is enabled for purposes of website accessibility

A Red Hat Packed With Dynamite

By Anders Bylund - Updated Nov 11, 2016 at 6:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Linux is still mostly a geek's dream, but its mainstream explosion is coming.

This quarter was all about constructing the fireworks of the future for Linux vendor Red Hat (NYSE:RHT). You don't see much happening at the moment, but all the ingredients for a massive eruption are there.

In its first quarter of fiscal 2009, Red Hat produced $0.08 of GAAP earnings per share on revenue of $156.6 million. That's a 32% sales increase over last year, while profits held steady. But the numbers don't tell the whole story here.

The open-source software veteran released major updates to four of its key products and re-signed every expired contract with its 25 largest subscribers -- for 50% more than the worth of the old deals. It's always cool to see the big boys upgrading their pacts, don't you think? Red Hat continues to invest in its global sales and support infrastructure, funding the growth from organic cash flows.

And if you doubt that the hackeriffic Linux platform is ready for a hard sell into the corporate space, consider that NYSE Euronext (NYSE:NYX) now runs its trading operations on Red Hat-powered machines. "Red Hat is as pervasive as water gear," said NYSE CIO Steve Rubinow, according to Red Hat's earnings call comments. "It is part and parcel of everything we do here from a computing standpoint." You can't ask for a stronger endorsement than that, especially since it comes from the traditional-minded Big Board boys at the heart of Wall Street.

Red Hat's efforts to scale up its business model positions the company for years of upcoming growth, at a time when Microsoft (NASDAQ:MSFT) seems to have botched its latest and greatest operating system launch. It also helps non-Windows competitors like Novell (NASDAQ:NOVL) and Sun Microsystems (NASDAQ:JAVA) in a roundabout way, by growing the Linux/Unix market into spaces where you might not have seen them before.

For now, it's all about the enterprise space. But remember that Apple (NASDAQ:AAPL) ships every Macintosh with a Unix-derivative operating system installed, and common people don't seem to have any problem adjusting to its quirks and advantages. One day, Red Hat will lead an assault on the consumer space, too, and you ain't seen nothing yet. This is a packet of explosive growth just waiting for a spark.

Further Foolishness:

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Red Hat, Inc. Stock Quote
Red Hat, Inc.
Microsoft Corporation Stock Quote
Microsoft Corporation
$264.89 (-1.05%) $-2.81
Apple Inc. Stock Quote
Apple Inc.
$141.66 (0.00%) $0.00
NYSE Holdings LLC Stock Quote
NYSE Holdings LLC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.