Red Hat's Investments Begin To Bear Fruit, Q3 Billings Handily Beat Estimates

Shares of Red Hat Inc RHT were trading higher by more than 5 percent ahead of Tuesday's market open in reaction to the company's fourth-quarter earnings report.

Baird: 'Clean Beat'

Rob Oliver of Baird commented in a research report that Red Hat provided investors with a "clean beat and raise" report in the quarter after a third-quarter rare miss. Revenue of $629 million beat the analyst's estimate of $619 million while the company's earnings per share of $0.61 matched estimates.

Billings of $986 million in the quarter rose 29 percent from a year ago and was "well above" both consensus estimates of $864 million and Oliver's Street-high estimate of $899 million. The analyst noted that billings benefited by $20 million from slipped deals in the third quarter that was closed in the fourth quarter.

Oliver added that emerging products revenue also accelerated in the quarter as OpenShift and OpenStack investments "are beginning to bear fruit."

Backlog

Oliver continued that Red Hat's off-balance sheet backlog rose 58 percent year-over-year in the quarter to $650 million and benefited from longer contract duration of 25 months versus 22 months.

More important, the short-term backlog which the analyst argues is a more accurate reflection of the strength of the business was also strong at $330 million, up 20 percent year-over-year.

The Bottom Line

Despite the company also announcing a "mega" deal of more than $100 million and billings came in well ahead of the consensus, Oliver maintained a Neutral rating on Red Hat's stock with a $90 price target.

Bottom line, the analyst maintains a "positive bias" on the stock and investors should "become more involved" on any pullback.

Related Links:

Red Hat Pins The Blame For Disappointing Quarter On Late-Closing Deals

Weak Billings Growth Likely To Dominate The Red Hat Story Both Near And Long Term